PACIFIC CAPITAL FUNDS, 497, 1998-03-04

PACIFIC CAPITAL FUNDS
497, 1998-03-04

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<PAGE> 1

PACIFIC CAPITAL FUNDS

Telephone: 800-258-9232

STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 29, 1997

(as supplemented on March 4, 1998)

BALANCED FUND
DIVERSIFIED FIXED INCOME FUND
GROWTH AND INCOME FUND
GROWTH STOCK FUND
NEW ASIA GROWTH FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
U.S. TREASURY SECURITIES FUND

Pacific Capital Funds (the "Trust") is a professionally managed,
open-end, management investment company with multiple funds available for
investment. This Statement of Additional Information ("SAI") contains
information about the "Class A, Class B and Class Y" shares of all nine of the
Trust's investment portfolios -- Balanced Fund, Diversified Fixed Income Fund,
Growth and Income Fund, Growth Stock Fund (formerly the Income Stock Fund), New
Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury
Securities Fund (each, a "Fund" and collectively, the "Funds"). The various
Funds and Classes of shares of the Funds are offered through separate
Prospectuses. Balanced Fund has not commenced operations as of the date of this
Statement of Additional Information.

This SAI is not a prospectus and should be read in conjunction
with the applicable Prospectus, dated November 29, 1997. All terms used in this
SAI that are defined in the applicable Prospectus will have the meanings
assigned therein. Copies of the Prospectuses for the Funds may be obtained
without charge by writing to BISYS Fund Services ("BISYS") the Trust's sponsor,
administrator and distributor, at 3435 Stelzer Road, Columbus, Ohio 43219-3035
or calling the Transfer Agent at the telephone number indicated above.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Cross
Reference
Page to Prospectus
---- -------------
<S> <C> <C>
Investment Restrictions........................... 3................. Additional Investment
Restrictions

Additional Information on Fund Investments........ 7................. Additional Discussion
Regarding Permitted
Investment Activities
Management........................................ 21................. Management, Advisory and
Other Service Arrangements
Distribution and Shareholder Service Plans........ 28................. Management, Advisory and
Other Service Arrangements
Calculation of Yield and Total Return............. 29................. General Information

Determination of Net Asset Value.................. 43................. Valuation of Class A and Class
B Shares, Valuation of Class Y
Shares

Purchase of Shares ............................... 43................. How to Purchase Class A and
Class B Shares

Redemption of Shares.............................. 44................. How to Redeem Class A and
Class B Shares; How to
Redeem Class Y Shares
Portfolio Transactions............................ 44................. Management, Advisory, and
Other Service Arrangements
Federal and Hawaiian Tax Information.............. 47................. Dividend and Tax Information
Capital Stock..................................... 52................. General Information
Custodian......................................... 56................. Management, Advisory, and
Other Service Arrangements
Other............................................. 57
Independent Auditors.............................. 57
Financial Information............................. 57
Appendix A........................................ A-1
Appendix B ....................................... B-1
</TABLE>

<PAGE> 3

INVESTMENT RESTRICTIONS

The Funds are subject to the following investment
restrictions, all of which are fundamental policies. As stated in each of the
Fund's Prospectuses under "Additional Discussion Regarding Permitted Investment
Activities -- Investment Policies," a fundamental investment policy may not be
changed without approval by vote of the holders of a majority of the relevant
Fund's outstanding voting securities. Also see "Capital Stock" in this SAI.

Investment Restrictions for All Funds except New Asia Growth Fund

Each of Balanced Fund, Diversified Fixed Income Fund, Growth
and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund,
Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S.
Treasury Securities Fund may not:

(1) purchase securities of any issuer (except Municipal
Obligations and securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or, with respect to 100% of its
total assets the Fund's ownership would be more than 10% of the outstanding
voting securities of such issuer except that this restriction does not apply to
the Tax-Free Securities Fund or the Tax-Free Short Intermediate Fund (the
"TaxFree Funds"), which are non-diversified funds;

(2) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Fund's investments in that
industry would be 25% or more of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (a) U.S.
Government Obligations and repurchase agreements secured by such obligations and
(b) with respect to the Tax-Free Funds, Municipal Obligations (for purposes of
this limitation, private activity bonds that are backed only by the assets and
revenues of a non-governmental user shall not be deemed to be Municipal
Obligations);

(3) borrow money or issue senior securities as defined in the
Investment Company Act of 1940, as amended (the "1940 Act") (except, with regard
to senior securities, as permitted pursuant to an order and/or a rule issued by
the Securities and Exchange Commission (the "Commission")), except that each of
the Funds, may borrow from banks up to 20% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value of its
net assets (but investments may not be purchased while any such outstanding
borrowing in excess of 5% of its net assets exists);

(4) purchase or sell real estate or real estate limited
partnerships (other than obligations or other securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein);

<PAGE> 4

(5) purchase commodities or commodity contracts; except that
each Fund may enter into futures contracts and may write call options and
purchase call and put options on futures contracts in accordance with its
investment objective and policies; See "Additional Discussion Regarding
Permitted Investment Activities -- Futures Contracts and Related Options" or
"Additional Discussion Regarding Permitted and Investment Activities -- Hedging
Strategies", as applicable, in each Fund's Prospectus;

(6) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;

(7) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;

(8) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;

(9) make investments for the purpose of exercising control or
management; or

(10) lend money or portfolio securities, except that each of
the Funds may enter into repurchase agreements and lend portfolio securities to
certain brokers, dealers and financial institutions aggregating up to 30% of the
current value of the lending Fund's total assets.

In addition, each of Balanced Fund, Diversified Fixed Income
Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities
Fund and U.S. Treasury Securities Fund will comply with the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval:

1. No Fund will purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for less
than three years, if by reason thereof the value of the Fund's investment in
such classes of securities would exceed 15% of the Fund's total assets.

2. No Fund will invest more than 10% of its net assets
in warrants.

3. Each Fund reserves the right to invest up to 15%
of the current value of its net assets in repurchase agreements having
maturities of more than seven days and other illiquid securities. For purposes
of this restriction, illiquid securities shall not include securities which may
be resold under Rule 144A under the Securities Act that the Board of Trustees,
or its delegate, determines to be liquid, based upon the trading markets for
the specific security.

<PAGE> 5

4. Each Fund may purchase put and call options and write
covered put and call options on securities in which such Fund may invest
directly and that are traded on registered domestic securities exchanges or that
result from separate, privately negotiated transactions with primary U.S.
Government securities dealers recognized by the Board of Governors of the
Federal Reserve System in an amount not exceeding 5% of the Fund's net assets.

INVESTMENT RESTRICTIONS FOR NEW ASIA GROWTH FUND

New Asia Growth Fund is subject to the following investment
restrictions, all of which are fundamental policies. New Asia Growth Fund may
not:

(1) purchase securities of any issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities)
if, as a result, with respect to 75% of its total assets, more than 5% of the
value of the Fund's total assets would be invested in the securities of any one
issuer or, with respect to 100% of its total assets, the Fund's ownership would
be more than 10% of the outstanding voting securities of such issuer;

(3) borrow money or issue senior securities as defined in the
1940 Act (except, with regard to senior securities, as permitted pursuant to an
order and/or a rule issued by the Commission), except that the Fund may borrow
from banks up to 33-1/3% the current value of its net assets for temporary,
extraordinary or emergency purposes, for clearance of transactions, to hedge
against currency movements or for investment purposes, and these borrowings may
be secured by the pledge of up to 33-1/3% current value of its net assets;

(4) purchase or sell real estate or real estate
limited partnerships (other than obligations or other securities secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein);

(5) purchase commodities or commodity contracts;
except that the Fund may deal in forward foreign exchange between currencies of
the different countries in which it may invest, may enter into futures
contracts and may write call options and purchase call and put options on
futures contracts in accordance with its investment objective and policies;

<PAGE> 6

(7) underwrite securities of other issuers, except to
the extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;

(8) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;

(9) make investments for the purpose of exercising
control or management. Investments by the Fund in wholly-owned investment
entities created under the laws of certain countries will not be deemed the
making of investments for the purpose of exercising control of management; or

(10) lend money or portfolio securities, except that the Fund
may enter into repurchase agreements and lend portfolio securities to certain
brokers, dealers and financial institutions aggregating up to 33-1/3% of the
current value of the Fund's total assets.

In addition, New Asia Growth Fund will comply with the
following nonfundamental restrictions, which may be changed by the Board of
Trustees without shareholder approval:

a. The Fund will not purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for less than
three years, if by reason thereof the value of the Fund's investment in such
classes of securities would exceed 15% of such Fund's total assets.

b. The Fund reserves the right to invest up to 15% of the
current value of its net assets in repurchase agreements having maturities of
more than seven days and other illiquid securities. For purposes of this
restriction, illiquid securities shall not include securities which may be
resold under Rule 144A under the Securities Act that the Board of Trustees, or
its delegate, determines to be liquid, based upon the trading markets for the
specific security.

c. To the extent required by the Commission or its staff, the
Fund will for purposes of fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one foreign country
(including governmental agencies and instrumentalities thereof) as the
obligations of a single issuer.

d. The Fund may not invest more than 10% of its net assets in
warrants.

<PAGE> 7

e. The aggregate value of the exercise price or strike price
of call options written by the Fund may not exceed 25% of the Fund's net asset
value.

------------------

If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Fund's portfolio securities or resulting from
reconstructions, consolidations, payments out of assets of the Fund or
realization of units will not constitute a violation of such limitation.

ADDITIONAL INFORMATION ON FUND INVESTMENTS

CHANGES IN INVESTMENT RATINGS.

To the extent the ratings given by a nationally recognized
statistical rating organization (an "NRSRO") may change as a result of changes
in such organizations or their rating systems, each Fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this Statement of
Additional Information. The ratings of the NRSROs currently used by the Funds
are more fully described in Appendix A to this Statement of Additional
Information.

FOREIGN SECURITIES

Each of the Funds may invest in foreign securities. Investing
in foreign securities involves certain risks described in the applicable
Prospectus.

Foreign markets have different settlement and clearance
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. For example, delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of a Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. The inability to dispose of a portfolio security due to
settlement problems could result either in losses to a Fund due to subsequent
declines in the value of such portfolio security or, if the Fund has entered
into a contract to sell the security, could result in possible liability to the
purchaser.

<PAGE> 8

DEBT SECURITIES

Sovereign Debt (New Asia Growth Fund only). New Asia Growth
Fund may invest in sovereign debt. Certain developing Asian countries, such as
the Philippines, owe significant amounts of debt to commercial banks and
foreign governments. Investment in sovereign debt involves a high degree of
risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund
and the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce
principal and interest arrearage on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms
and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third party's commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to timely service its debts. Consequently, governmental entities
may default on their sovereign debt.

Holders of sovereign debt, including New Asia Growth Fund,
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which a governmental entity has defaulted may be
collected in whole or in part.

The sovereign debt instruments in which New Asia Growth Fund
may invest involve great risk and are deemed to be the equivalent in terms of
quality to high yield/high risk securities discussed below and are subject to
many of the same risks as such securities. Similarly, New Asia Growth Fund may
have difficulty disposing of certain sovereign debt obligations because there
may be a thin trading market for such securities. New Asia Growth Fund will not
invest more than 5% of its total assets in sovereign debt, including sovereign
debt which is in default.

Lower Rated Debt Securities (New Asia Growth Fund only). New
Asia Growth Fund may invest in lower rated debt securities. Securities rated in
the medium to low rating categories of NRSROs such as Standard & Poor's
Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and unrated
securities of comparable quality (referred to herein as "high yield/high risk
securities") are predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the security and
generally involve a greater volatility of price than securities in higher
rating categories. See "Appendix A." These securities are commonly referred to
as "junk bonds." In purchasing such securities, New Asia Growth Fund will rely
on the investment adviser's judgment, analysis and experience in evaluating the
creditworthiness

<PAGE> 9

of an issuer of such securities. The investment adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. New Asia Growth Fund
is not authorized to purchase debt securities that are in default, except that
the Fund may invest in sovereign debt (discussed above) which is in default,
provided that not more than 5% of the Fund's total assets are invested in
sovereign debt (including sovereign debt securities which are in default).

The market values of high yield/high risk securities tend to
reflect individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the
securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or a sustained
period of rising interest rates, issues of high yield/high risk securities may
be more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of high
yield/high risk securities because such securities may be unsecured and may be
subordinated to the creditors of the issuer.

High yield/high risk securities may have call or redemption
features which would permit an issuer to repurchase the securities from New
Asia Growth Fund. If a call were exercised by the issuer during a period of
declining interest rates, New Asia Growth Fund likely would have to replace
such called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and dividends to shareholders.

New Asia Growth Fund may have difficulty disposing of certain
high yield/high risk securities because there may be a thin trading market for
such securities. To the extent that a secondary trading market for high
yield/high risk securities does exist, it is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and New Asia Growth Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain high yield/high risk securities also may make it more
difficult for New Asia Growth Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio. Market quotations are generally
available on many high yield/high risk securities only from a limited number of
dealers and may not necessarily represent firm bids of such dealers of prices
for actual sales. The Trustees, or the investment adviser, will carefully
consider the factors affecting the market for high yield/high risk, lower rated
securities in determining whether any particular security is liquid or illiquid
and whether current market quotations are readily available.

<PAGE> 10

Adverse publicity and investor perceptions, which may not be
based on fundamental analysis, also may decrease the value and liquidity of
high yield/high risk securities, particularly in a thinly traded market.
Factors adversely affecting the market value of high yield/high risk securities
are likely to adversely affect New Asia Growth Fund's net asset value. In
addition, New Asia Growth Fund may incur additional expenses to the extent it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.

MUNICIPAL BONDS

The Tax-Free Funds may invest in municipal bonds. As
discussed in the Prospectus, the two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. Municipal bonds are debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets, and water and sewer
works. Other purposes for which municipal bonds may be issued include the
refunding of outstanding obligations and obtaining funds for general operating
expenses or to loan to other public institutions and facilities. Industrial
development bonds are a specific type of revenue bond backed by the credit and
security of a private user. Certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project, may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.

MUNICIPAL NOTES

The Tax-Free Funds may invest in municipal notes. Municipal
notes include, but are not limited to, tax anticipation notes ("TANs"), bond
anticipation notes ("BANs"), revenue anticipation notes ("RANs") and
construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.

TANs. Uncertainty in a municipal issuer's capacity to raise
taxes as a result of such events as a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.

BANs. The ability of a municipal issuer to meet its
obligations on its BANs is primarily dependent on the issuer's adequate access
to the longer term municipal

<PAGE> 11

bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal of, and interest on, BANs.

RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.

The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values will also
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in the Tax-Free Funds'
portfolios, will decline and (if purchased at par value) they would sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) they would sell at a premium.
Changes in the value of municipal securities held in the Funds' portfolios
arising from these or other factors will cause changes in the net asset value
per share of the Tax-Free Funds.

The taxable securities market is a broader and more liquid
market with a greater number of investors, issuers and market makers than the
market for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.

WARRANTS

Each Fund may invest in warrants. Any limitations on a Fund's
investment in warrants are set forth above in "Investment Restrictions."
Warrants represent rights to purchase securities at a specific price valid for
a specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. A Fund may only purchase warrants
on securities in which such Fund may invest directly.

GUARANTEED INVESTMENT CONTRACTS

Each of the Funds may make limited investments in Guaranteed
Investment Contracts ("GICs") issued by highly rated U.S. insurance companies.
Pursuant to such contracts, the Funds make cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the respective Fund on a monthly basis guaranteed interest which is based on
an index. The GICs provide that this guaranteed interest will not be less than
a certain minimum rate. Generally, a GIC allows a purchaser to buy an annuity
with the monies accumulated under the contract; however, the Funds will not
purchase any such annuities. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. A GIC is a general
obligation of the issuing insurance company and not a separate

<PAGE> 12

account. The purchase price paid for a GIC becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.

Each Fund will only purchase GICs from issuers which, at the
time of purchase, are rated "A" or higher by A.M. Best Company, have assets of
$1 billion or more, and meet quality and credit standards established by
Hawaiian Trust. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market
in GICs does not currently exist. Also, a Fund may not receive the principal
amount of a GIC from the insurance company on seven days' notice or less.
Therefore, GICs are considered by the Funds to be illiquid investments.

OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES

As discussed in the applicable Prospectus, the Funds may use
a variety of financial instruments to hedge a Fund's investments and, in
certain limited cases, to enhance income or manage a Fund's cash flow ("Hedging
Instruments"). The particular Hedging Instruments are described in Appendix B
to this Statement of Additional Information.

Hedging strategies can be broadly categorized as short hedges
and long hedges. A short hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held by a Fund. Thus, in a short hedge a Fund takes a position
in a Hedging Instrument whose price is expected to move in the opposite
direction of the price of the investment being hedged. For example, a Fund
might purchase a put option on a security to hedge against a potential decline
in the value of that security. If the price of the security declines below the
exercise price of the put, the Fund could exercise the put and thus limit its
loss below the exercise price to the premium paid plus transaction costs. In
the alternative, because the value of the put option can be expected to
increase as the value of the underlying security declines, a Fund might be able
to close out the put option and realize a gain to offset the decline in the
value of the security.

Conversely, a long hedge is a purchase or sale of a Hedging
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that a Fund intends to acquire.
Thus, in a long hedge a Fund takes a position in a Hedging Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transaction
costs. Alternatively, a Fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.

Hedging Instruments on securities generally are used to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Hedging Instruments on stock indices, in
contrast, generally are used

<PAGE> 13

to hedge against price movements in broad equity market sectors in which a Fund
has invested or expects to invest. Hedging Instruments on debt securities may be
used to hedge either individual securities or broad fixed income market sectors.

The use of Hedging Instruments is subject to applicable
regulations of the Commission, the several options and futures exchanges upon
which they are traded and the Commodity Futures Trading Commission ("CFTC").
In addition, a Fund's ability to use Hedging Instruments will be limited by tax
considerations. See "Federal and Hawaiian Tax Information."

In addition to the products, strategies and risks described
below and in the Prospectus, the investment adviser expects to discover
additional opportunities in connection with options, future contracts, foreign
currency forward contracts and other hedging techniques. These new
opportunities may become available as the investment adviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, foreign currency forward
contracts or other techniques are developed. The investment adviser may utilize
these opportunities to the extent that they are consistent with a Fund's
investment objectives and permitted by the Fund's investment limitations and
applicable regulatory authorities. The applicable Prospectus and this Statement
of Additional Information will be supplemented to the extent that new products
or techniques involve materially different risks than those described below or
in the Prospectus.

Special Risks of Hedging Strategies. The use of Hedging
Instruments involves special considerations and risks, as described below.
Risks pertaining to particular Hedging Instruments are described in the
sections that follow.

(1) Successful use of most Hedging Instruments depends upon
the investment adviser's ability to predict movements of the
overall securities and interest rate markets, which requires
different skills than predicting changes in the price of
individual securities. There can be no assurance that any
particular hedging strategy adopted will succeed.

(2) There might be imperfect correlation, or even no
correlation, between price movements of a Hedging Instrument
and price movements of the investments being hedged. For
example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such
as speculative or other pressures on the markets in which
Hedging Instruments are traded. The effectiveness of hedges
using Hedging Instruments on indices will depend on the
degree of correlation between price movements in the index
and price movements in the securities being hedged.

(3) Hedging strategies, if successful, can reduce risk of
loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged.
However, hedging strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable

<PAGE> 14

price movements in the hedged investments. For example, if a
Fund entered into a short hedge because the investment adviser
projected a decline in the price of a security held by the
Fund, and the price of that security increased instead, the
gain from that increase might be wholly or partially offset by
a decline in the price of the Hedging Instrument. Moreover, if
the price of the Hedging Instrument declined by more than the
increase in the price of the security, the Fund could suffer a
loss. In either such case, the Fund would have been in a
better position had it not hedged at all.

(4) As described below, a Fund might be required to maintain
assets as "cover," maintain segregated accounts or make
margin payments when it takes positions in Hedging
Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If a Fund
were unable to close out its positions in such Hedging
Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the
position expired or matured. These requirements might impair
a Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at
a disadvantageous time. A Fund's ability to close out a
position in a Hedging Instrument prior to expiration or
maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and
willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and
price that is favorable to the Fund.

Cover for Hedging Strategies. Transactions using Hedging
Instruments, other than purchased options, expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless, to the
extent required by law, it (1) owns an offsetting covered position in
securities or other options or futures contracts or (2) segregates liquid
assets with a value sufficient at all times to cover its potential obligations
to the extent not covered as provided in (1) above. Each Fund will comply with
Commission guidelines regarding cover for hedging transactions.

Assets used as cover or held in a segregated account cannot
be sold while the position in the corresponding Hedging Instrument is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of a Fund's assets to cover or to segregated accounts could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.

Options. As described in the applicable Prospectus, each Fund
may engage in options for hedging purposes, and each of Balanced Fund,
Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short
Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund and U.S. Treasury Securities Fund may engage in
options to enhance income.

The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing covered put or call
options can enable a

<PAGE> 15

Fund to enhance income by reason of the premiums paid by the purchasers of such
options. However, if the market price of the security underlying a covered put
option declines to less than the exercise price of the option, minus the premium
received, a Fund would expect to suffer a loss. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and a Fund will be obligated to sell the security at less than its market value.

Options may be used to enhance income since the receipt of
premiums by a Fund's options positions may enable the Fund to realize a greater
return than would be realized on the underlying securities alone. In return for
the premium received for a call option, a Fund forgoes the opportunity for
profit from a price increase in the underlying security above the exercise
price so long as the option remains open, but retains the risk of loss should
the price of the security decline. In return for the premium received for a put
option, a Fund assumes the risk that the price of the underlying security will
decline below the exercise price, in which case the put would be exercised and
the Fund would suffer a loss. A Fund may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.

The value of an option position will reflect, among other
things, the current market value of the underlying investment, the time
remaining until expiration, the relationship of the exercise price to the
market price of the underlying investment, the historical price volatility of
the underlying investment and general market conditions. Options normally have
expiration dates of up to nine months. Options that expire unexercised have no
value.

A Fund may effectively terminate its right or obligation
under an option by entering into a closing transaction. For example, a Fund may
terminate its obligation under a call option that it had written by purchasing
an identical call option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction.

Currently, many options on equity securities are
exchange-traded. Exchange markets for options on debt securities and foreign
currencies exist but are relatively new, and these instruments are primarily
traded on the OTC market. Exchange-traded options in the United States are
issued by a clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its contra party (usually a securities dealer or a bank, as
required by the Fund's policies) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it relies on the party from whom
it purchased the option or to whom it has written the option (the contra party)
to make or take delivery of the underlying investment upon exercise of the
option. Failure by the contra party to do so would result in the loss of any
premium paid by a Fund as well as the loss of any expected benefits of the
transaction.

<PAGE> 16

Generally, foreign currency options (New Asia Growth Fund
only) and OTC debt options used by a Fund may be European-style options or
American style options. A European style option is only exercisable immediately
prior to its expiration. American-style options are exercisable at any time
prior to the expiration date of the option.

A Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, a Fund might be unable to close out an OTC option position at any
time prior to its expiration.

If a Fund were unable to effect a closing transaction for an
option it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by a Fund could cause material losses because the
Fund would be unable to sell the investment used as cover for the written
option until the option expires or is exercised.

The staff of the Commission has taken the position that
purchased options not traded on registered domestic securities exchanges and
the assets used as cover for written options not traded on such exchanges are
generally illiquid securities. However, the staff has also opined that, to the
extent a mutual fund sells an OTC option to a primary dealer that it considers
creditworthy and contracts with such primary dealer to establish a formula
price at which the fund would have the absolute right to repurchase the option,
the fund would only be required to treat as illiquid the portion of the assets
used to cover such option equal to the formula price minus the amount by which
the option is "in-the-money." In accordance with this view, the Funds will
treat such options and, except to the extent permitted through the procedure
described in the preceding sentence, assets as subject to such Fund's
limitation on investments in securities that are not readily marketable.

Futures. The purchase of futures or call options thereon can
serve as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, using a strategy similar to that
used for writing covered call options on securities and indices.

Futures strategies also can be used to manage the average
duration of a Fund. If the investment adviser wishes to shorten the average
duration of a Fund, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If the investment
adviser wishes to lengthen the average duration of a Fund, the Fund may buy a
futures contract or a call option thereon.

<PAGE> 17

No price is paid upon entering into a futures contract.
Instead, at the inception of a futures contract each Fund is required to
deposit in a segregated account with its custodian, in the name of the futures
broker through whom the transaction was effected, initial margin consisting of
cash, U.S. Government securities or other liquid, high-grade debt securities,
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a Fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a Fund may be required by an exchange to increase
the level of its initial margin payment, and initial margin requirements might
be increased generally in the future by regulatory action.

Subsequent variation margin payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as marking to market. Variation margin does not involve borrowing, but
rather represents a daily settlement of a Fund's obligations to or from a
futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If a Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.

Holders and writers of futures positions and options on
futures can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions in futures and options
on futures may be closed only on an exchange or board of trade that provides a
secondary market. The Funds intend to enter into futures transactions only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. Secondary markets for options on
futures are currently in the development stage, and a Fund will not trade
options on futures on any exchange or board of trade unless, in the Hawaiian
Trust's opinion, the markets for such options have developed sufficiently that
the liquidity risks for such options are not greater than the corresponding
risks for futures.

Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a future or related option can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures or related
options position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund

<PAGE> 18

would continue to be required to make daily variation margin payments and might
be required to maintain the position being hedged by the future or option or to
maintain cash or securities in a segregated account.

Certain characteristics of the futures market might increase
the risk that movements in the prices of futures contracts or related options
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, program trading and other investment strategies might result in
temporary price distortions.

Limitations on the Use of Futures. In accordance with current
CFTC regulations, each Fund may use futures contracts and options thereon
traded on a commodities exchange in bona fide hedging transactions without
regard to percentage limitations but may not enter into other types of futures
contracts and options thereon for which the aggregate initial margin and
premiums exceed 5% of the Fund's total assets (calculated in accordance with
CFTC regulations). Furthermore, as a matter of operating policy, aggregate
initial margin deposits for all futures contracts and premiums paid for related
options for each of Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund may not exceed 5% of each Fund's total assets
(calculated in accordance with CFTC regulations) and the value of the
securities that are subject to futures and options thereon (both for receipt
and delivery) may not exceed one-third of the market value of each Fund's total
assets.

Foreign Currency Hedging Strategies -- Special Considerations
(New Asia Growth Fund Only). New Asia Growth Fund may use options and futures
on foreign currencies, and foreign currency forward contracts as described
below to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the New Asia Growth Fund owns or
intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other
causes.

New Asia Growth Fund might seek to hedge against changes in
the value of a particular currency when no Hedging Instruments on that currency
are available or such Hedging Instruments are more expensive than certain other
Hedging Instruments. In such cases, New Asia Growth Fund may hedge against
price movements in that currency by entering into transactions using Hedging
Instruments on other currencies, the values of

<PAGE> 19

which the investment adviser believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Hedging Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.

The value of Hedging Instruments on foreign currencies
depends on the value of the underlying currency relative to the U.S. dollar.
Because foreign currency transactions occurring in the interbank market might
involve substantially larger amounts than those involved in the use of such
Hedging Instruments, the Fund could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Hedging Instruments until they
reopen.

Settlement of hedging transactions involving foreign
currencies might be required to take place within the country issuing the
underlying currency. Thus, the New Asia Growth Fund might be required to accept
or make delivery of the underlying foreign currency in accordance with any U.S.
or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.

Foreign Currency Forward Contracts (New Asia Growth Fund
Only). New Asia Growth Fund may enter into foreign currency forward contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. New Asia Growth Fund also may use foreign currency
forward contracts for cross-hedging. Under this strategy, New Asia Growth Fund
would increase its exposure to foreign currencies that the investment adviser
believes might rise in value relative to the U.S. dollar, or shift its exposure
to foreign currency fluctuations from one country to another. For example, if
New Asia Growth Fund owned securities denominated in a foreign currency and the
investment adviser believed that currency would decline relative to another
currency, it might enter into a forward contract to sell an appropriate amount
of the first foreign currency, with payment to be made in the second foreign
currency.

The cost to New Asia Growth Fund engaging in foreign currency
forward contracts varies with factors such as the currency involved, the length
of the contract period and the market conditions then prevailing. Because
foreign currency forward contracts are usually entered into on a principal
basis, no fees or commissions are involved. When New Asia Growth Fund enters
into a foreign currency forward contract, it relies on the contra party to make
or take delivery of the underlying currency at the

<PAGE> 20

maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.

As is the case with futures contracts, holders and writers of
foreign currency forward contracts can enter into offsetting closing
transactions, similar to closing transactions on futures, by selling or
purchasing, respectively, an instrument identical to the instrument held or
written. Secondary markets generally do not exist for foreign currency forward
contracts, with the result that closing transactions generally can be made for
foreign currency forward contracts only by negotiating directly with the contra
party. Thus, there can be no assurance that New Asia Growth Fund will in fact be
able to close out a foreign currency forward contract at a favorable price prior
to maturity. In addition, in the event of insolvency of the contra party, New
Asia Growth Fund might be unable to close out a foreign currency forward
contract at any time prior to maturity. In either event, New Asia Growth Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or securities in a segregated
account.

The precise matching of foreign currency forward contract
amounts and the value of the securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the foreign currency forward contract has been established. Thus,
New Asia Growth Fund might need to purchase or sell foreign currencies in the
spot (cash) market to the extent such foreign currencies are not covered by
forward contracts. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.

Limitations on the Use of Foreign Currency Forward Contracts
(New Asia Growth Fund Only). New Asia Growth Fund may enter into foreign
currency forward contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency or (2) New Asia Growth Fund
maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the contract and not covered as
provided in (1) above, as marked to market daily. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. However, the investment adviser believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of New Asia Growth Fund will be served.

ASSET BACKED SECURITIES

The purchase of non-mortgage backed securities raise
considerations peculiar to the financing of the instruments underlying such
securities. For example, most organizations that issue Asset Backed Securities
relating to motor vehicle installment purchase obligations perfect their
interest in their respective obligations only

<PAGE> 21

by filing a financing statement and by having the servicer of the obligations,
which is usually the originator, take custody thereof. In such circumstances, if
the servicer were to sell the same obligations to another party, in violation of
its duty to do so, there is a risk that such party could acquire an interest in
the obligations superior to that of the holders of the Asset Backed Securities.
Also, although most such obligations grant a security interest in the motor
vehicle being financed, in most states the security interest in a motor vehicle
must be noted on the certificate of title to perfect such security interest
against competing claims of other parties. Due to the large number of vehicles
involved, however, the certificate of title to each vehicle financed, pursuant
to the obligations underlying the Asset Backed Securities, usually is not
amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the Asset Backed Securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related Asset Backed Securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and Federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other Asset Backed Securities, credit card receivables are unsecured
obligations of the cardholders.

MANAGEMENT

Trustees and Officers. The name, age and principal occupation
during the past five years of each of the Trustees and executive officers of
the Trust are listed below. The address of each, unless otherwise indicated, is
3435 Stelzer Road, Columbus, Ohio 43219-3035. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk
(*).

Walter J. Laskey* (56), Trustee and Chairperson - Executive
Vice President of Bank of Hawaii - Private Client and Institutional Services
(1993-present).

Irimga McKay* (37), Trustee and President - 1230 Columbia
Street, San Diego, California 92101. Senior Vice President of BISYS Fund
Services (1994-present); Senior Vice President of Concord Financial Group
(1986-1994).

<PAGE> 22

Douglas Philpotts* (66), Trustee - Financial Plaza of the
Pacific, P.O. Box 3170, Honolulu, Hawaii 96802. Chairman of the Board of
Directors (1992-1994), President (1986-1992) and Director (1984-present) of
Pacific Century Trust; Director of Victoria Ward; Trustee of The Strong
Foundation and Seabury Hall; Trustee of Cash Assets Trust, U.S. Treasuries Cash
Assets Trust, Hawaiian Tax-Free Trust and Tax-Free Cash Assets Trust
(1992-present); Affiliated with The Pacific Club, Ohu Country Club, Maui
Country Club, Punahou O-Mens Club, and University of Hawaii Foundation
President's Club. Formerly a Director and Officer of various cultural,
educational, community and professional organizations.

Richard W. Gushman II (51), Trustee - 700 Bishop Street,
Suite 200, Honolulu, Hawaii 96813. President and Chief Executive Officer of
OKOA, INC., a private Hawaii corporation involved in commercial real estate
(1985-present); Adviser to RAMPAC, Inc., a wholly owned subsidiary of the Bank
of Hawaii, involved with commercial real estate finance; Trustee of Cash Assets
Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust
(1993-present); Member of the Boards of Aloha United Way Downtown Improvement
Association, Boys and Girls Club of Honolulu and Oceanic Cablevision, Inc.

Stanley W. Hong (61), Trustee -1132 Bishop Street, Honolulu,
Hawaii 96813. President and Chief Executive Officer of the Chamber of Commerce
of Hawaii (1996-present); Business Consultant (1994-present); Senior Vice
President of McCormack Properties, Ltd. (1993-1995); President and Chief
Executive Officer of the Hawaii Visitors Bureau (1984-1993); Vice President,
General Counsel and Corporate Secretary at TheoDavies & Co., Ltd., a multiple
business company (1973-1984); formerly Legislative Assistant to U.S. Senator
Hiram L. Fong; Member of the Boards of Directors of several community
organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and
U.S. Treasuries Cash Assets Trust (1993-present); Director of Capital
Investment of Hawaii, Inc. (Real Estate and Wholesale Bakery) (1995-present);
Director of Central Pacific Bank (1995-present); Trustee of the Nature
Conservancy of Hawaii (1990-present); Regent of Chaminade University of
Honolulu (1990-present).

Russell K. Okata (53), Trustee - 888 Mililani Street, Suite
601, Honolulu, Hawaii 96813-2991. Executive Director, Deputy Executive
Director, Administration Officer or Research Statistician of Hawaii Government
Employees Association AFSCME Local 152, AFL-CIO (1970-present); Trustee of Cash
Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust
(1993-present); Chairman of the Royal State Insurance Group (1988-present);
Trustee of several charitable organizations.

Oswald K. Stender (65), Trustee - P.O. Box 3466, Honolulu,
Hawaii 96801. Trustee of Bernice Pauahi Bishop Estate (1990-present); Director
of Hawaiian Electric Industries, Inc., a public utility holding company
(1993-present); Senior Advisor to the Trustees of The Estate of James Campbell
(1987-1989); and Chief Executive Officer (1976-1988); Director of several
housing and real estate associations; Director, member or trustee of several
community organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets
Trust and U.S. Treasuries Cash Assets Trust (1993-present).

Craig Warren (35), Treasurer - 111 South King Street,
Honolulu, Hawaii 96813. Vice President of Bank of Hawaii - Asset Management and
Private Client Group

<PAGE> 23

(1994-present); Senior Financial Analyst of Federal Home Loan Bank of San
Francisco Marketing Strategies and Analysis Division (1993-1994); Chief
Financial Officer of Wells Fargo Securities, Inc. (1990-1992); Vice President of
Wells Fargo Bank - Private Banking Group (1987-1992).

Gregory Maddox (29), Secretary - 1230 Columbia Street, San
Diego, California 92101. Director of BISYS Fund Services (1991-present).

Thresa Dewar (43), Assistant Secretary - Vice President and
Treasurer, Financial Administration of BISYS Fund Services (March,
1997-present); Vice President and Controller of Federated Administrative
Services (1972-1994).

Alaina Metz (30), Vice President - Chief Administrative
Officer of BISYS Fund Services - Blue Sky Compliance (1995 - present); Alliance
Capital Management, L.P. (1989-1995).

William J. Tomko (39), Vice President - Senior Vice President
of BISYS Fund Services (1987-present).

Eileen Walther (44), Vice President - Vice President of
Accounting Services of BISYS Fund Services (1996-present); Assistant Vice
President of Templeton International (1984-1995).

As of the date of this SAI, Trustees and officers of the
Trust as a group beneficially owned less than 1% of the outstanding shares of
each Fund.

Trustees of the Trust who are not officers or employees of
the Trust, BISYS or Pacific Century Trust, the adviser to the Funds ("Pacific
Century") are entitled to receive from the Trust a quarterly retainer and a fee
for each Board of Trustees meeting attended. All Trustees are reimbursed for
all reasonable out-of-pocket expenses relating to attendance at meetings. The
following table sets forth the fees and expenses paid by each Fund to the
Trustees for the fiscal year ended July 31, 1997:

<TABLE>
<CAPTION>
Aggregate Trustees' Fees
and Expenses for the
Fiscal Year Ended
Fund July 31, 1997
---- -------------
<S> <C>
Diversified Fixed Income Fund $ 15,638
Growth and Income Fund $ 8,622
Growth Stock Fund $ 21,030
New Asia Growth Fund $ 958
Short Intermediate U.S. Treasury Securities $ 2,646
Fund
Tax-Free Securities Fund $ 32,709
Tax-Free Short Intermediate Securities Fund $ 4,623
U.S. Treasury Securities Fund $ 2,007
- ----------
</TABLE>
23

<PAGE> 24
The following table sets forth the aggregate compensation
paid by the Trust to the Trustees who are not officers and employees of the
Trust, BISYS or Pacific Century and the aggregate compensation paid to such
Trustees by all investment companies (including the Trust) advised by Pacific
Century for the periods indicated.

<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement Estimated from Trust and
Aggregate Benefits Accrued Benefits Other Funds
Compensation as Part Upon Advised by Pacific
Name of Trustee From Trust(1) of Fund Expenses Retirement Century (2)
- --------------- ------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Richard W. Gushman II $10,500 None None $43,700

Stanley W. Hong $10,500 None None $44,788

Russell K. Okata $10,500 None None $44,137.50

Douglas Philpotts $10,500 None None $46,900

Oswald K. Stender $10,500 None None $43,755.23
</TABLE>

- ---------
(1) Provided for the fiscal year ended July 31, 1997.

(2) Provided for the calendar year ended December 31, 1996. In
addition to the Funds, each of the Trustees served on the boards of
one other trust advised by Pacific Century, comprising four separate
funds.

<PAGE> 25

Investment Adviser. Pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"), each of the Funds is advised by Pacific
Century. Subject to the supervision of the Board of Trustees, Pacific Century
will provide a continuous investment program for the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. Pacific Century will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Trust with respect to the Funds. From time to time, the
Funds, to the extent consistent with their investment objectives, policies and
restrictions, may invest in securities of companies with which Pacific Century
has a lending relationship. Pacific Century will provide the services under the
Advisory Agreement in accordance with each of the Fund's investment objectives,
policies, and restrictions.

For its services under the Advisory Agreement, Pacific
Century receives compensation from each Fund based on a percentage of the
Fund's average daily net assets. The rate of advisory fees payable by each Fund
to Pacific Century is set forth in the prospectus. The following table sets
forth the aggregate fees paid by each Fund pursuant to its Advisory Agreement
for the fiscal years July 31, 1997 ended July 31, 1996 and July 31, 1995:

Compensation Paid to Pacific Century
Under the Advisory Agreement
<TABLE>
<CAPTION>
For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended July 31,1997 Ended July 31, 1996 Ended July 31, 1995
--------------------------- ------------------------------ -----------------------------
Aggregate Aggregate Aggregate
Advisory Fee Advisory Advisory
Paid Fee Paid Aggregate Fee Paid Aggregate
(After Waiver Aggregate (After Waiver, as Fee (After Waiver, as Fee
Fund as applicable) Fee Waived applicable) Waived applicable) Waived
---- -------------- ---------- ----------------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Diversified Fixed $867,869 N/A $ 814,802 N/A $208,807* $ 2,102*

Income Fund

Growth and Income $768,642 N/A $ 503,952 N/A $217,059* $ 2,099*
Fund

Growth Stock Fund $1,499,559 N/A $ 1,359,262 N/A $869,719 $ 1,855

New Asia Growth $141,522 $ 7,778 $ 52,972 N/A $1,722* $ 6,789*
Fund

Short Intermediate $71,646 $47,940 $ 61,600 $41,079 $37,281 $26,093

U.S. Treasury
Securities Fund

Tax-Free Securities $1,756,304 N/A $ 1,724,513 N/A $1,242,045* $11,920*
Fund

Tax-Free Short $195,480 N/A $ 202,701 N/A $ 149,902* $1,569*

Intermediate Securities
Fund

U.S. Treasury $145,470 N/A $ 172,954 N/A $ 349,687 --
Securities Fund
- --------------------
</TABLE>

* Period from commencement of operations through July 31, 1995. Diversified
Fixed Income Fund, Growth and Income Fund, Tax-Free Securities Fund and
Tax-Free Short Intermediate Securities Fund commenced operations on October
14, 1994. New Asia Growth Fund commenced operations on February 15, 1995.

<PAGE> 26

The Advisory Agreement provides that Pacific Century shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of the Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
the Advisory Agreement.

The Advisory Agreement will continue in effect beyond its
initial two year term provided the continuance is approved annually (i) by the
holders of a majority of the respective Fund's outstanding voting securities or
by the Trust's Board of Trustees and (ii) by a majority of the Trustees of the
Trust who are not parties to the Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Advisory Agreement may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.

The Trust has been advised that Pacific Century should be
able to perform the services contemplated by the Advisory Agreement, the
Custodian Agreement, and the Prospectuses, without violation of the
Glass-Steagall Act. However, there are no controlling judicial or
administrative interpretations or decisions and future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as future changes in federal or
state statutes and regulations and judicial or administrative decisions or
interpretations thereof, could prevent Pacific Century from continuing to
perform, in whole or in part, such services. If Pacific Century were prohibited
from performing any of such services, it is expected that new agreements would
be entered into with another entity or entities qualified to perform such
services.
26

<PAGE> 27

The Sub-Adviser (New Asia Growth Fund only). Nicholas
Applegate Capital Management (Hong Kong) LLC serves as Sub-Adviser to New Asia
Growth Fund. Pursuant to a separate sub-advisory agreement with Pacific Century
(the "Sub-Advisory Agreement"), the SubAdviser provides investment advisory
services with respect to management of the foreign component of New Asia Growth
Fund's portfolio, including investment research with respect to all foreign
securities, currencies and cash equivalents in New Asia Growth Fund. For its
services, Pacific Century pays the Sub-Adviser a fee, computed daily and
payable quarterly, equal on an annual basis, to 0.50% of New Asia Growth Fund's
average daily net assets. The Sub-Adviser's fee is paid by Pacific Century, and
New Asia Growth Fund does not pay any incremental fee for the services of the
Sub-Adviser. For the fiscal years ended July 31, 1997, July 31, 1996 and July
31, 1995, Pacific Century paid sub-advisory fees to the predecessor sub-adviser
in the amount of $141,522, $29,567 and $4,728, respectively, for services
provided to New Asia.

The Sub-Adviser is a California limited liability company.

The Sub-Advisory Agreement will continue in effect beyond its
initial two year term provided its continuance is approved annually in the same
manner as the Advisory Agreement. The Sub-Advisory Agreement may be terminated
at any time without penalty on 60 days' written notice by either party, by the
Board of Trustees or by the vote of a majority of the Fund's outstanding voting
securities. The Sub-Advisory Agreement will terminate automatically if
assigned.

Administrator and Distributor. The Trust has retained BISYS
as administrator and distributor on behalf of each of its Funds. See,
"Management, Advisory and Other Services" in the applicable Prospectus.

Under the Administration Agreement with the Trust, BISYS, in
connection therewith, furnishes the Trust with office facilities, together with
those ordinary clerical and bookkeeping services that are not being furnished
by Pacific Century. For expenses assumed and services provided as administrator
pursuant to the Administration Agreement, BISYS is entitled to receive a fee
from the Funds, computed daily and paid monthly, at an annual rate equal to
0.20% of the average daily net assets of each Fund. The following table sets
forth the aggregate fees paid, after giving effect to fee waivers, as
applicable, by each Fund to BISYS for services provided pursuant to the
Administration Agreement for the fiscal years ended July 31, 1997, July 31,
1996 and July 31, 1995:

<PAGE> 28

Compensation Paid to BISYS
Under the Administration Agreement

<TABLE>
<CAPTION>
Aggregate Fees Paid Aggregate Fees Aggregate Fees
under Paid under Paid under
Administration Administration Administration
Agreement for Agreement for Agreement for
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
July 31, 1997 July 31, 1996 July 31, 1995
Fund (after waiver) (after waiver) (after waiver)
---- -------------- -------------- --------------
<S> <C> <C> <C>
Diversified Fixed Income Fund $231,432 $216,788 $ 52,202*
Growth and Income Fund $153,729 $100,430 $ 40,700*
Growth Stock Fund $299,912 $270,656 $169,099
New Asia Growth Fund $ 24,883 $ 8,807 $ 1,405*
Short Intermediate U.S. Treasury $ 35,823 $ 30,800 $ 33,598
Securities Fund
Tax-Free Securities Fund $486,348 $457,502 $310,511*
Tax-Free Short Intermediate $ 58,644 $ 60,810 $ 44,970*
Securities Fund
U.S. Treasury Securities Fund $ 38,792 $ 45,683 $ 93,618
</TABLE>

BISYS has entered into a Distribution Agreement with the
Trust pursuant to which it has the responsibility of distributing shares of the
Funds. For its services, BISYS is entitled to a distribution fee, as set forth
in the Distribution and Shareholder Service Plans for each of the Class A and
Class B shares ("Class A Distribution Plan" and "Class B Distribution Plan,"
respectively). The Class A Distribution Plan and the Class B Distribution Plan
have been adopted pursuant to Rule 12b-1 under the 1940 Act. See "Distribution
and Shareholder Service Plans" below.

Transfer Agent. Administrative Data Management Corporation
("ADM"), serves as Transfer Agent for each of the Funds.

<PAGE> 29

Code of Ethics. The Board of Trustees of the Trust has
adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act (the
"Code"). The Code restricts the investing activities of Fund officers,
Trustees and advisory persons and, as described below, imposes additional, more
onerous restrictions on Fund investment personnel.

All persons covered by the Code are required to preclear any
personal securities investment (with limited exceptions, such as government
securities) and must comply with ongoing requirements concerning recordkeeping
and disclosure of personal securities investments. The preclearance requirement
and associated procedures are designed to identify any prohibition or
limitation applicable to a proposed investment. In addition, all persons
covered by the Code are prohibited from purchasing or selling any security
which, to such person's knowledge, is being purchased or sold (as the case may
be), or is being considered for purchase or sale, by a Fund. Investment
personnel are subject to additional restrictions such as a ban on acquiring
securities in an initial public offering, "blackout periods" which prohibit
trading by investment personnel of a Fund within periods of trading by the Fund
in the same security and a ban on short-term trading in securities.

DISTRIBUTION AND SHAREHOLDER SERVICE PLANS

As indicated above, the Trust has adopted for the Class A and
Class B shares of each of the Funds the Class A Distribution Plan and the Class
B Distribution Plan under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder. The Class A Distribution Plan and the Class B Distribution Plan of
each of the Funds were adopted by the Board of Trustees, including a majority
of the trustees who were not "interested persons" (as defined in the 1940 Act)
of the Funds and who had no direct or indirect financial interest in the
operation of the Distribution Plans or in any agreement related to the
Distribution Plans (the "Qualified Trustees"). The Class A Distribution Plan
provides that with respect to the Class A shares, BISYS is entitled to receive
a fee in an amount not to exceed on an annual basis 0.75% of the average daily
net asset value of the Fund attributable to the Fund's Class A shares. The
Class B Distribution Plan provides that with respect to the Class B Shares,
BISYS is entitled to receive a fee in an amount not to exceed on an annual
basis 1.00% of the average daily net asset value of the Fund attributable to
the Fund's Class B shares. The distribution fee compensates BISYS for the
following: (a) payments BISYS makes to banks and other institutions and
industry professionals, such as broker/dealers, including Pacific Century,
BISYS and their affiliates or subsidiaries, pursuant to an agreement in
connection with providing sales and/or administrative support services to the
holders of a Fund's Class A and Class B shares; or (b) payments to financial
institutions and industry professionals (such as insurance companies,
investment counselors, and BISYS' affiliates and subsidiaries) in consideration
for the distribution services provided and expenses assumed in connection with
distribution assistance, including, but not limited to, printing and
distributing prospectuses to persons other than current Class A and Class B
shareholders of a Fund, printing and distributing advertising and sales
literature and reports to Class A and Class B shareholders in connection with
the sale of a Fund's shares, and providing personnel and communication
equipment used in servicing shareholder accounts and prospective Class A and
Class B shareholder inquiries.

The distribution fees shall be paid to BISYS only to
compensate or to reimburse it for actual payments or expenses incurred as
described above. The distribution fees paid by the Funds to BISYS for services
provided under the Class A Distribution Plan for the fiscal year ended July 31,
1997, restated to reflect fee waivers, are set forth in the table below. The
Class B shares

29
<PAGE> 30

had not yet been publicly offered as of the date of this Statement of Additional
Information. Accordingly, no distribution fees have been paid to BISYS to date
under the Class B Distribution Plan.

Distribution Fees Paid to BISYS Under the Class A Distribution Plan

Aggregate Distribution
Fees Paid for Fiscal
Year Ended July 31, 1997
Fund (after waiver)
---- --------------
<S> <C>
Diversified Fixed Income Fund $ 2,805
Growth and Income Fund $ 5,247
Growth Stock Fund $16,369
New Asia Growth Fund $ 6,793
Short Intermediate U.S. Treasury Securities Fund $ 1,865
Tax-Free Securities Fund $ 3,161
Tax-Free Short Intermediate Securities Fund $ 1,996
U.S. Treasury Securities Fund $ 2,630
</TABLE>

The Class A Distribution Plan and Class B Distribution Plan
will continue in effect from year to year if such continuance is approved by a
majority vote of both the Trustees of the Trust and the Qualified Trustees.
Agreements related to the Distribution Plans also must be approved by such vote
of the Trustees and the Qualified Trustees. Such agreements will terminate
automatically if assigned, and may be terminated at any time, without payment
of any penalty, by a vote of a majority of the outstanding voting securities of
the proper Fund. The Distribution Plans relating to a Fund may not be amended
to increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the proper Fund, and no
material amendment to the Distribution Plans may be made except by a majority
of both the Trustees of the Trust and the Qualified Trustees.

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectuses, the Funds may advertise
certain yield information. As and to the extent required by the Commission,
yield will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula: YIELD = 2[((a-b)cd)+1)(6)-1], where a = dividends and
interest earned during the period;

<PAGE> 31

b = expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. The net investment income of the Funds includes actual interest
income, plus or minus amortized purchase discount (which may include original
issue discount) or premium, less accrued expenses. Realized and unrealized
gains and losses on portfolio securities are not included in the Funds' net
investment income. For purposes of sales literature, yield on Class A shares
also may be calculated on the basis of the net asset value per share rather than
the public offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.

The tax-equivalent yield for the Tax-Free Funds also may be
computed by dividing that portion of the yield of the Funds which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion,
if any, of the yield of the Funds that is not tax-exempt.

The yield for the Funds will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yields
since it is based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.

In addition, investors should recognize that changes in the
net asset values of shares of the Funds will affect the yield of such Funds for
any specified period, and such changes should be considered together with the
Fund's yield in ascertaining the Fund's total return to shareholders for the
period. Yield information for the Funds may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The yield of a Fund, however, may not be comparable to
the yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.

As indicated in the Prospectuses, the Funds may advertise
certain total return information. As and to the extent required by the
Commission, an average annual compound rate of return ("T") will be computed by
using the value at the end of a specified period ("ERV") of a hypothetical
initial investment ("P") over a period of years ("n") according to the
following formula: P(1+T)(n) = ERV. Aggregate total return will be calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period rather than annualized. In addition, as
indicated in the Prospectuses, the Funds may also, at times, calculate total
return of Class A shares based on net asset value per share (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data for the Class
A shares derived pursuant to the calculation described above also are
presented.

From time to time, the Trust may include the following types
of information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data
to supplement such discussions; (4) descriptions of past or anticipated
portfolio holdings for one or more of the Funds; (5) descriptions of investment
strategies for one or more of the Funds; (6) descriptions or comparisons of
various savings and investment products (including, but not limited to, insured
bank products, annuities, qualified retirement plans and individual

<PAGE> 32
stocks and bonds), which may or may not include the Funds; (7) comparisons of
investment products (including the Funds) with relevant market or industry
indices or other appropriate benchmarks; (8) discussions of fund rankings or
ratings by recognized rating organizations; and (9) testimonials describing the
experience of persons that have invested in one or more of the Funds. The Trust
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.

From time to time, the Trust may also quote the Funds'
performance in advertising and other types of literature as compared to the
performance of the S&P Index, the Dow Jones Industrial Average, indices of
bonds, stocks or government securities, and other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. This information
may be based on data relating to various mutual fund or market indices such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or
data prepared by Lipper Analytical Services, Inc. Comparisons may also be made
to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, USA Today, Fortune,
CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and local newspapers
and periodicals.

The S&P Index and the Dow Jones Industrial Average are
unmanaged indices of selected common stock prices. The U.S. Treasury Securities
Fund, the Short Intermediate U.S. Treasury Securities Fund, the Diversified
Fixed Income Fund, the Tax-Free Securities Fund or the Tax-Free Short
Intermediate Securities Fund also may be compared, in reports and promotional
literature, to the Consumer Price Index, the Salomon One Year Treasury
Benchmark Index, the Ten Year U.S. Government Bond Average, S&P's Corporate
Bond Yield Averages, the Schabacker Investment Management Indices, the Salomon
Brothers High Grade Bond Index, the Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, the Lehman Brothers 20+ Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, and Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts). This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA/Wiesenberger or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare a Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results.

The Trust also may discuss in advertising and other types of
literature that one or more of the Funds has been assigned a rating by an
NRSRO, such as Standard & Poor's Corporation. Such rating would assess the
creditworthiness of the investments held by a Fund. The assigned rating would
not be a recommendation to purchase, sell or hold the Fund's shares since the
rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to a Fund or its
investments. The Trust may compare a Fund's performance with other investments
which are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with other rated
investments.

<PAGE> 33

Set forth below is total return and yield information for the
Class A, Class B and Class Y shares of the Funds, other than Balanced Fund,
which has not yet commenced operations as of the date of this Statement of
Additional Information. Information for Class B shares of the Funds is based on
the information for the Class A Shares (adjusted for deferred sales loads,
because these shares were not offered until March 1998. Information for Class B
shares of the Funds has not been adjusted for expenses applicable to the Class B
shares, specifically the difference in 12b-1 fees charged to Class A and Class
B shares. Future performance for Class B shares will be affected by the
difference in 12b-1 fees charged.

<PAGE> 34

Diversified Fixed Income Fund

The average annual and aggregate total return for the Diversified Fixed Income
Fund includes the performance of certain common trust fund ("Commingled")
accounts advised by Pacific Century and managed the same as the Fund in all
material respects, for periods dating back to October 31, 1977, as applicable,
and prior to commencement of operations of the Fund's Class A, B and Y shares.
(See note "*"). Such performance is adjusted to reflect the expenses associated
with the Fund. The Commingled accounts were not registered with the Commission
under the 1940 Act, and therefore were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have
been adversely affected.

<TABLE>
<CAPTION>
Class A* Class B* Class Y*
----------------------------- ------------------------------ -------------------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of $1000 at the end of
Period investment the period investment the period investment the period
------ ---------- ------------ ---------- ---------- ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One Year Ended January 31, 1998 5.90% $1,059 5.35% $1,054 10.56% $1,106

Five Years ended January 31, 1998 5.57 1,311 6.13 1,346 6.81 1,390

Ten Years ended January 31, 1998 7.51 2,063 7.95 2,149 8.27 2,214

Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended January 31, 1998 5.90% $1,059 5.35% $1,054 10.56% $1,106

Five Years ended January 31, 1998 31.13 1,311 34.65 1,346 39.01 1,390

Ten Years ended January 31, 1998 106.29 2,063 114.90 2,149 121.35 2,214

Inception (October 31, 1977) 120.62 2,206 129.59 2,296 142.81 2,428
to January 31, 1998

Yield
(including maximum applicable sales charge)**

30 Days Ended January 31, 1998 4.93% N/A 5.38%
</TABLE>

- -------------------

* Class A and Class Y shares of the Fund commenced operations on October 14,
1994. The Class B shares of the Fund commenced operations on March 2, 1998.

** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.

<PAGE> 35

Growth and Income Fund

The average annual and aggregate total return for the Growth and Income Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A, B and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under the
1940 Act, and therefore were not subject to the investment restrictions imposed
by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.

Class A* Class B* Class Y*
----------------------------- ------------------------------ -------------------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of $1000 at the end of
Period investment the period investment the period investment the period
------ ---------- ------------ ---------- ---------- ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One Year Ended January 31, 1998 22.25% $1,223 22.32% $1,223 27.68% $1,277
Five Years ended January 31, 1998 15.68 2,071 16.41 2,138 16.90 $2,183
Ten Years ended January 31, 1998 13.63 3,589 14.09 3,737 14.36 $3,826

Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended January 31, 1998 22.25% $1,223 22.32% $1,223 27.68% $1,277
Five Years ended January 31, 1998 107.15 2,071 113.77 2,138 118.31 $2,183
Ten Years ended January 31, 1998 258.86 3,589 273.66 3,737 282.60 $3,826
Inception (October 31, 1977) to
January 31, 1998 689.70 7,897 723.16 8,232 764.62 8,646
Yield
(including maximum applicable sales charge)**

30 Days Ended January 31, 1998 0.26% N/A 0.51%
- -------------------
</TABLE>

* The Class A and Class Y Shares of the Fund commenced operations on October
14, 1994. The Class B shares of the Fund commenced operations on March 2,
1998.

** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0% There is no sales
charge imposed in connection with the purchase of Class Y shares.

<PAGE> 36

Growth Stock Fund

The average annual and aggregate total return for the Growth Stock Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A, B and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under
the 1940 Act, and therefore were not subject to the investment restrictions
imposed by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.

Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended January 31, 1998 19.71% $1,197 19.70% $1,197 24.98% $1,250
Five Years ended January 31, 1998 100.96 2,010 107.33 2,073 111.67 2,117
Ten Years ended January 31, 1998 293.78 3,938 310.93 4,109 321.76 4,218
Inception (October 31, 1977) to
January 31, 1998 985.32 10,853 1,026.54 11,265 1,093.56 11,935

Yield
(including maximum applicable sales charge)**

30 Days Ended January 31, 1998 N/A N/A N/A
- -------------------
</TABLE>

* The Class A shares of the Fund commenced operations on November 1, 1993. The
Class B shares of the Fund commenced operations on March 2, 1998. The Class Y
shares of the Fund commenced operations on October 14, 1994.

<PAGE> 37

<TABLE>
<CAPTION>
Short Intermediate U.S. Treasury Securities Fund
------------------------------------------------------------
Class A* Class Y*
---------------------------- ----------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**

<S> <C> <C> <C> <C>
One Year
Ended January 31,
1998 5.56% $1,056 8.28% $1,083

Inception*
to January 31,
1998 3.87 1,170 4.67 1,208

Aggregate Total Return
(including maximum applicable sales charge)**

One Year
Ended January 31,
1998 5.56% $1,056 8.28% $1,083

Inception*
to January 31,
1998 17.00 1,170 20.79 1,208

Yield
(including maximum applicable sales charge)**

30 Days
Ended January 31,
1998 4.53% 4.89%

<CAPTION>
New Asia Growth Fund
-------------------------------------------------------------------------------------------
Class A* Class B* Class Y*
---------------------------- ---------------------------- ----------------------------
Redeemable Redeemable
Redeemable value of a value of a
Expressed as value of a Expressed as hypothetical Expressed as hypothetical
a percentage hypothetical a percentage $1000 a percentage $1000
based on a $1000 based on a investment based on a investment
hypothetical investment hypothetical at the end hypothetical at the end
$1000 at the end of $1000 of $1000 of
Period investment the period investment the period investment the period
------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
One Year
Ended January 31,
1998 (36.97)% $630 (36.43)% $636 (33.36)% $666

Inception*
to January 31,
1998 (5.45) 847 (4.58) 870 (3.53) 899

Aggregate Total Return
(including maximum applicable sales charge)**

One Year
Ended January 31,
1998 (36.97)% $630 (36.43)% $636 (33.36)% $666

Inception*
to January 31,
1998 (15.32) 847 (12.97) 870 (10.10) 899

Yield
(including maximum applicable sales charge)**

30 Days
Ended January 31,
1998 N/A N/A N/A
</TABLE>

- -----------------------

* Short Intermediate U.S. Treasury Securities Fund commenced operations of its
Class A shares on November 1, 1993 and its Class Y shares on October 14,
1994. The New Asia Growth Fund commenced operations of its Class A and
Class Y shares on February 15, 1995 and its Class B shares on March 2, 1998.

** The maximum applicable sales charge on the Class A shares of the
Short-Intermediate U.S. Treasury Securities Fund is 2.25%. The maximum
applicable sales charge on the Class A shares of the New Asia Growth Fund is
5.25%. The maximum deferred sales charge on Class B shares is 5.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares of
either Fund.

<PAGE> 38

Tax Free Securities Fund

The average annual and aggregate total return for the Tax Free Securities Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A, B and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under the
1940 Act, and therefore were not subject to the investment restrictions imposed
by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.

<S> <C> <C> <C> <C> <C> <C>
One Year Ended January 31, 1998 4.91% $1,049 4.30% $1,043 9.75% $1,098

Five Years ended January 31, 1998 5.40 1,301 5.94 1,334 6.59 1,376

Ten Years ended January 31, 1998 6.78 1,927 7.21 2,006 7.51 2,063

Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended January 31, 1998 4.91% $1,049 4.30% $1,043 9.75% $1,098

Five Years ended January 31, 1998 30.08 1,301 33.44 1,334 37.59 1,376

Ten Years ended January 31, 1998 92.71 1,927 100.61 2,006 106.29 2,063

Inception (October 31, 1997)
to January 31, 1998 76.72 1,767 84.09 1,840 94.25 1,942

Yield
(including maximum applicable sales charge)**

30 Days Ended January 31, 1998 4.01% N/A 4.43%
- -------------------
</TABLE>

* The Class A and Class Y shares of the Fund commenced operations on October
14, 1994. The Class B shares of the Fund commenced operations on March 2,
1998.

<PAGE> 39

Tax Free Short Intermediate Securities Fund

The average annual and aggregate total return for the Tax Free
Short-Intermediate Securities Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century and managed the
same as the Fund in all material respects, for periods dating back to March 31,
1988, as applicable, and prior to commencement of operations of the Fund's
Class A and Y shares. (See note "*"). Such performance is adjusted to reflect
the expenses associated with the Fund. The Commingled accounts were not
registered with the Commission under the 1940 Act, and therefore were not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled accounts had been registered, the Commingled accounts'
performance may have been adversely affected.

<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------ ------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ---------- ---------- ----------

Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054

Five Years ended July 31, 1997 3.10% $1,165 3.91% $1,211

Inception (March 31, 1988)
to July 31, 1997 4.33% $1,485 4.87% $1,559

Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054

Five Years ended July 31, 1997 16.49% $1,165 21.13% $1,211

Inception (March 31, 1988)
to July 31, 1997 48.53% $1,485 55.96% $1,560

Yield
(including maximum applicable sales charge)**

30 Days Ended July 31, 1997 3.05% 3.37%
- -------------------
</TABLE>
* The Class A and Class Y shares of the Fund commenced operations on
October 14, 1994.

** The maximum applicable sales charge on the
Class A shares is 2.25%. There is no sales charge imposed in
connection with the purchase of Class Y Shares.

<PAGE> 40

U.S. Treasury Securities Fund

The average annual and aggregate total return for the U.S. Treasury Securities
Fund includes the performance of certain common trust fund ("Commingled")
accounts advised by Pacific Century and managed the same as the Fund in all
material respects, for periods dating back to December 31, 1984, as applicable,
and prior to commencement of operations of the Fund's Class A and Y shares.
(See note "*"). Such performance is adjusted to reflect the expenses associated
with the Fund. The Commingled accounts were not registered with the Commission
under the 1940 Act, and therefore were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have
been adversely affected.

Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 4.33% $1,043 8.92% $1,089
31, 1997
Five Years ended July 5.09% $1,282 6.17% $1,349
31, 1997
Ten Years ended July 7.09% $1,984 7.72% $2,105
31, 1997
Aggregate Total Return
(including maximum applicable sales charge)**

One Year Ended July 4.33% $1,043 8.92% $1,089
31, 1997
Five Years ended July 28.20% $1,282 34.90% $1,349
31, 1997
Ten Years ended July 98.37% $1,984 110.45% $2,105
31, 1997
Inception (December 175.72% $2,757 194.16% $2,942
31, 1984) to July 31,
1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 4.87% 5.32%
1997
- -------------------
</TABLE>
* The Class A Shares of the Fund commenced operations on November 1, 1993
and the Class Y shares commenced operations on October 14, 1994.

** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
40

<PAGE> 41

DETERMINATION OF NET ASSET VALUE

Net asset value per share of the Class A and Class B shares
for each Fund is determined on each day that the New York Stock Exchange (the
"Exchange") is open for trading and any other day (other than a day on which no
Shares of that Fund are tendered for redemption and no order to purchase shares
is received) during which there is sufficient trading in the Fund's portfolio
securities that the Fund's net asset value per share might be materially
affected. The Exchange is closed on the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day and Good Friday.

Securities of the Funds for which market quotations are
available are valued at latest reported prices. Securities of the Funds for
which the primary market is a national securities exchange or the National
Association of Securities Dealers Automated Quotations National Market System
are valued at last reported sale prices. In the absence of any sale of such
securities on the valuation date and in the case of other securities, including
U.S. Government securities but excluding money market instruments maturing in
60 days or less, the valuations are based on the mean between the bid and asked
prices. Money market instruments and other debt securities maturing in 60 days
or less are valued at amortized cost. The assets of the Funds, other than debt
securities maturing in 60 days or less, are valued at the mean between the bid
and asked prices. Futures contracts and options listed on a national exchange
are valued at the last sale price on the exchange on which they are traded at
the close of the Exchange, or, in the absence of any sale on the valuation
date, at mean between the bid and asked prices. Options not listed on a
national exchange are valued at the mean between the bid and asked prices.
Quotation of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Foreign currency exchange contracts shall be valued at the current
cost of covering or offsetting such contracts.

In all cases, bid prices will be furnished by reputable
independent pricing services approved by the Board of Trustees. Prices provided
by an independent pricing service may be determined without exclusive reliance
on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by Pacific Century in accordance with procedures
adopted by the Trustees and subject to ratification by the Trustees. If Pacific
Century is unable to make such a determination in accordance with such
procedures, the securities and assets will be valued at fair value as
determined in good faith by the Trustees.

PURCHASE OF SHARES

Reference is made to "How to Purchase Class A and Class B Shares" and
"How to Purchase Class Y Shares" in the Prospectuses for certain information as
to the purchase of Fund shares.

Each Fund offers three classes of shares: Shares of Class A are sold
with an initial sales charge, shares of Class B are sold with a CDSC and shares
of Class Y are sold to eligible investors without a sales charge. Class A and
Class B shares each have exclusive
41

<PAGE> 42

voting rights with respect to the Rule 12b-1 distribution plan adopted with
respect to such class pursuant to which the distribution fees are paid. Class B
shares automatically convert to Class A shares after approximately eight years.
See "Conversion of Class B shares to Class A shares."

Class Y shareholders of any Fund who terminate their qualified trust
account, employee benefit account or other qualifying relationship with an
institution are no longer eligible to make additional investments in a Fund's
Class Y shares. The Board of Trustees has approved an automatic conversion
feature whereby Class Y shares held by shareholders who have terminated their
qualifying relationship on or after February 15, 1997 will be converted to
Class A shares of the same Fund on the basis of the relative net asset values
of the shares of the two classes on the conversion date, without incurring any
fee, sales load or other charge. As Class A shareholders in a Fund, such former
Class Y shareholders will be able to reinvest dividends and distributions
relating to their shareholdings, but will be subject to the higher expenses
associated with Class A shares. A conversion of Class Y shares for Class A
shares will be a tax-free transaction for any Class Y shareholder involved in
such conversion. Class Y shareholders who plan to terminate their qualified
trust account, employee benefit account or other qualifying relationship and
who do not wish to have their holdings converted to Class A shares may choose
to redeem their shares.

Class Y shareholders whose qualified trust account, employee benefit
account or other qualifying relationship was terminated prior to February 15,
1997 are permitted to remain as Class Y shareholders; however, such
shareholders may not make additional purchases of Class Y shares, nor may such
shareholders reinvest dividends and distributions in respect of their Class Y
shareholdings.

REDEMPTION OF SHARES

Reference is made to the sections in the Prospectus(es)
entitled "How to Redeem Class A and Class B Shares" and "How to Redeem Class Y
Shares." The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Trust uses the
following procedures to process telephone redemptions: (1) obtaining some or
all of the following information: account number, name(s), social security
number registered to the account, and personal identification; (2) recording
all telephone transactions; and (3) sending written confirmation of each
transaction to the registered owner.

PORTFOLIO TRANSACTIONS

The Trust has no obligation to deal with any broker-dealer or
group of broker-dealers in the execution of transactions in portfolio
securities. In connection with its duties to arrange for the purchase and sale
of each Fund's portfolio securities, Pacific Century will select such
broker-dealers ("Broker-Dealers") as will, in Pacific Century's judgment,
implement the policy of the Trust to achieve quality execution at the most
favorable prices through responsible Broker-Dealers, and in the case of agency
transactions, at competitive commission rates. Pacific Century shall cause the
Trust to deal directly with the selling or purchasing principal or market maker
without incurring brokerage commissions unless Pacific Century determines that
better price or execution may be obtained by paying such commissions.

<PAGE> 43

In allocating transactions to Broker-Dealers, Pacific Century is authorized to
consider, in determining whether a particular Broker-Dealer will provide best
execution, the Broker-Dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
where it is believed that another Broker-Dealer would offer greater reliability
or provide a better price or execution. In addition, Pacific Century has adopted
a brokerage allocation policy in reliance on Section 28(e) of the Securities and
Exchange Act of 1934, permitting Pacific Century to cause a Fund to pay
commission rates in excess of those another Broker-Dealer would have charged if
Pacific Century determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by the Broker-Dealer, viewed either in terms of the particular
transaction or Pacific Century's overall responsibilities as to the accounts
over which it exercises investment discretion. Such research may be in written
form or through direct contact with individuals and may include quotations on
portfolio securities and information on particular issuers and industries, as
well as on market, economic or institutional activities. If, on the foregoing
basis, the transaction in question could be allocated to two or more
Broker-Dealers, Pacific Century is authorized, in allocating portfolio trades,
to consider whether a Broker-Dealer has sold shares of the Trust or any other
investment company or companies having Pacific Century as its investment adviser
or having the same administrator or principal underwriter as the Trust.

Each year, Pacific Century assesses the contribution of the
brokerage and research services provided by the Broker-Dealers, and attempts to
allocate a portion of its brokerage business in response to these assessments.
Research analysts, counselors, and various investment committees each seek to
evaluate the brokerage and research services they receive from BrokerDealers
and make judgments as to the level of business which would recognize such
services. In addition, Brokers-Dealers sometimes suggest a level of business
they would like to receive in return for the various brokerage and research
services they provide. Actual brokerage received by any firm may be less than
the suggested allocations but can, and often does, exceed the suggestions,
because the total business is allocated on the basis of all the considerations
described above. In no case is a Broker-Dealer excluded from receiving business
from Pacific Century because it has not been identified as providing research
services.

Purchases and sales of securities by U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed
Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate
Securities Fund usually will be principal transactions. Each of the Funds also
will purchase portfolio securities in underwritten offerings and may purchase
securities directly from the issuer. Generally, debt securities, taxable money
market securities and over the counter equities are traded on a net basis and
do not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions.

Purchases and sales of equity securities on a securities
exchange are effected through brokers who charge a negotiated commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price that

<PAGE> 44

includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount.

BISYS and certain affiliates of the Sub-Adviser are registered
broker-dealers. From time to time, a portion of a Fund's brokerage transactions
may be conducted with such broker-dealers, subject to the criteria for
allocation of brokerage described above. The Trust's Board of Trustees has
adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to such broker-dealers are fair and reasonable.

As a result of its investment policies, each Fund may engage
in a substantial number of portfolio transactions. Accordingly, while each Fund
anticipates that its annual portfolio turnover rate should not exceed 100%,
under normal conditions, it is impossible to predict portfolio turnover rates.
A high portfolio turnover rate involves correspondingly greater transaction
costs in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund. The portfolio turnover rate will not be a limiting factor
when Pacific Century deems portfolio changes appropriate.

For the fiscal years ended July 31, 1997, July 31, 1996 and
July 31, 1995, purchase and sale transactions by U.S. Treasury Securities Fund,
Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed Income
Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund
did not involve brokerage commissions. The total brokerage commissions paid by
Growth and Income Fund, Growth Stock Fund and New Asia Growth Fund for the
fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995, are set
forth in the table below:

Brokerage Commissions Paid By Certain Funds
-------------------------------------------
<TABLE>
<CAPTION>
Total Total Total
Commission Commission Commission
Paid for Fiscal Paid for Fiscal Paid for Fiscal
Year Ended Year Ended Year Ended
Fund July 31, 1997 July 31, 1996 July 31, 1995
---- ------------- ------------- -------------
<S> <C> <C> <C>
Growth and Income $237,637 $269,961.90 $37,693.60*
Fund
Growth Stock Fund $241,913 $355,375.96 $130,066.20
New Asia Growth $243,253 $ 95,781.41 $21,682.82*
Fund
</TABLE>

- --------------------

* Period from commencement of operations through July 31, 1995. Growth and
Income Fund commenced operations on October 14, 1994. New Asia Growth Fund
commenced operations on February 15, 1995.

With respect to the Growth and Income Fund, the total amount of commissions
paid by the Fund for the fiscal year ended July 31, 1997 differed materially
from the amount paid by the Fund for the fiscal year ended July 31, 1995
because the Fund increased in size by more than 150% during that period. As a
result, the size of the transactions and the number of transactions were also
increased. With respect to the New Asia Growth Fund, the total amount of
commissions paid by the Fund for the fiscal year ended July 31, 1997 differed
materially from the amount paid by the Fund for the fiscal year ended July 31,
1995 because the Fund more than doubled in size during that period, and because
of volatility in the South East Asian market. As a result, the number of
transactions were also increased.

<PAGE> 45

For the fiscal years ended July 31, 1997, July 31, 1996, and
the period February 15, 1995 (commencement of operations) to July 31, 1995, the
New Asia Growth Fund paid brokerage commissions of $10,992, $7,457, and $1,600,
respectively, to Credit Lyonnais Securities, an affiliate of Credit Lyonnais,
which served as Sub-Adviser to the New Asia Growth Fund until July 31, 1997.
Nicholas-Applegate, the current Sub-Adviser to the New Asia Growth Fund is not
affiliated with any Broker-Dealer which effects portfolio transactions for the
Funds. For the fiscal year ended July 31, 1997, the percentage of the Funds'
aggregate brokerage commissions paid to Credit Lyonnais Securities was 4.5%, and
the percentage of the Funds' aggregate dollar amount of transactions involving
the payment of commissions effected through Credit Lyonnais Securities was
8.54%.

The percentage of total portfolio transactions placed with,
and related commissions paid to, firms which provided research, statistical, or
other services to Pacific Century in connection with the management of the
Funds, or in some cases, to the Funds, for the fiscal year ended July 31, 1997
are set forth below:

<TABLE>
<CAPTION>
Fund Percentage of Total Total Commissions Paid to
---- Portfolio Transactions Provider of Research,
---------------------- Statistical and Other
Services
--------
<S> <C> <C>
Growth Stock Fund 100% $209,198
Growth and Income Fund 100% $151,532
</TABLE>

The portfolio turnover rates for each Fund for the fiscal
years ended July 31, 1997 and July 31, 1996 are set forth in the table below:

Portfolio Turnover Rates Of The Funds
-------------------------------------

<TABLE>
<CAPTION>
Year Year
Fund Ended July 31, 1997 Ended July 31, 1996
---- ------------------- -------------------
<S> <C> <C>
Diversified Fixed Income Fund 80.98% 58.86%
Growth and Income Fund 74.83% 80.83%
Growth Stock Fund 32.20% 61.30%
New Asia Growth Fund 134.89% 86.53%
Short Intermediate U.S. 51.56% 47.17%
Treasury Securities Fund
Tax-Free Securities Fund 11.07% 24.78%
Tax-Free Short Intermediate 29.46% 54.70%
Securities Fund
U.S. Treasury Securities Fund 44.90% 15.75%
</TABLE>

<PAGE> 46

FEDERAL AND HAWAIIAN TAX INFORMATION

The Prospectus describes generally the federal and certain
Hawaiian tax treatment of distributions by the Funds. This section of the SAI
includes certain additional information concerning federal and Hawaiian income
taxes.

Qualification as a "regulated investment company" under the
Code generally requires, among other things, that (a) at least 90% of each
Fund's annual gross income be derived from interest, payments with respect to
securities loans, dividends, gains from the sale or other disposition of
securities or options thereon, and certain related income; (b) for tax years
beginning on or before August 5, 1997, each Fund derives less than 30% of its
gross income from gains from the sale or other disposition of securities or
options thereon, or certain other financial investments, held for less than
three months; and (c) each Fund diversifies its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities, securities of
other regulated investment companies and other securities limited in respect of
any one issuer to an amount not greater than 5% of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other regulated investment
companies), or of two or more issuers which the Fund controls (i.e., owns,
directly or indirectly, 20% of the voting stock) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses. As regulated investment companies, the Funds will not be subject to
federal income tax on their net investment income and net capital gains
distributed to their shareholders, provided that they distribute to their
shareholders at least 90% of their net investment income and tax-exempt income
earned in each year.

A 4% nondeductible excise tax will be imposed on each Fund to
the extent it does not meet certain minimum distribution requirements by the
end of each calendar year. This excise tax would not apply to tax-exempt income
of the Tax-Free Funds. For this purpose, any income or gain retained by a Fund
that is subject to tax will be considered to have been distributed by year-end.
In addition, dividends and distributions declared payable as of a date in
October, November or December of any calendar year are deemed under the Code to
have been received by the shareholders on December 31 of that calendar year
(and also will be taxable to shareholders in such year) if the dividend is
actually paid in the following January. Each Fund intends to distribute
substantially all of its net investment income and net capital gains and, thus,
expects not to be subject to the excise tax.

<PAGE> 47

Income and dividends received by any of the Funds from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders may be able to claim
U.S. foreign tax credits with respect to such taxes, subject to certain
conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. Because each of Balanced Fund, Growth and Income
Fund, Growth Stock Fund, Diversified Fixed Income Fund, Short Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities
Fund and U.S. Treasury Securities Fund is expected to limit their investment in
foreign securities, these Funds will not be eligible to elect to "pass through"
foreign tax credits to shareholders. New Asia Growth Fund invests primarily in
foreign securities. If more than 50% in value of New Asia Growth Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, New Asia Growth Fund will be eligible and intends to file an
election with the Internal Revenue Service pursuant to which shareholders of
New Asia Growth Fund will be required to include their proportionate shares of
such withholding taxes in their U.S. income tax returns as gross income, treat
such proportionate shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use them as
foreign tax credits against their U.S. income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
New Asia Growth Fund's election described in this paragraph but may not be able
to claim a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder. New Asia Growth Fund will
report annually to its shareholders the amount per share of such withholding
taxes.

Gains or losses on sales of portfolio securities by a Fund will
be mid-term or long-term capital gains or losses if the securities have been
held by it for more than one year or more than 18 months, respectively, except
in certain cases where a Fund acquires a put or writes a call thereon or
otherwise engages in a transaction that "tolls" the Fund's holding period. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. The amount of tax payable by an individual or corporation will be
affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.

A capital gains distribution or dividend will be a return of
invested capital to the extent the net asset value of an investor's shares is
thereby reduced below his or her cost, even though the distribution would be
taxable to the shareholder. A redemption of shares by a shareholder under these
circumstances could result in a capital loss for federal tax purposes.

If a shareholder exchanges or otherwise disposes of shares of
the Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.

Any loss realized on a redemption or exchange of shares of a
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.

<PAGE> 48

If an option written by a Fund lapses or is terminated through
a closing transaction, such as a repurchase by the Fund of the option from its
holder, such Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction.

If securities are sold by a Fund pursuant to the exercise of a
call option written by it, such Fund will add the premium received to the sale
price of the securities delivered in determining the amount of gain or loss on
the sale. If securities are purchased by a Fund pursuant to the exercise of a
put option written by it, such Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement (which applies solely
to tax years beginning on or before September 5, 1997) that each Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Fund's ability to write options.

The amount of any gain or loss realized by a Fund on closing
out a futures contract will generally result in a realized capital gain or loss
for tax purposes. Regulated futures contracts held at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes.
In this regard, they will be deemed to have been sold at market value. Sixty
percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales,
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the marked to market rule and the "60%/40%"
rule. Newly-enacted Code Section 1259 will require the recognition of gain (but
not loss) if a Fund makes a "constructive sale" of an appreciated financial
position (e.g. debt instruments and stock). A Fund generally will be considered
to make a constructive sale of an appreciated financial position if it sells
the same or substantially identical property short, enters into a futures or
forward contract to deliver the same or substantially identical property, or
enters into certain other similar transactions.

Currency transactions may be subject to Section 988 of the
Code, under which foreign currency gains or losses would generally be computed
separately and treated as ordinary income or losses. The Funds will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.

Class B Shareholders. No gain or loss will be recognized by a
shareholder upon the conversion of Class B shares to Class A shares.

Foreign Shareholders. Under the Code, distributions of net
investment income (including distributions of short-term capital gains) by a
Fund to a nonresident alien individual, nonresident alien fiduciary of a trust
or estate, foreign corporation, or foreign partnership (a "foreign shareholder")
will be subject to U.S. withholding tax (at the rate of 30% or a lower treaty
rate). Withholding will not apply if a dividend paid by a Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirements applicable to U.S. citizens or
domestic corporations will apply. Distributions of net capital gains derived by
non-resident aliens or foreign entities that are not effectively connected with
a U.S. trade or business are not subject to tax withholding, but in the case of
a foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax if the individual is physically
present in the U.S. for more than 182 days during the taxable year (in which
case the individual may be treated as a U.S. resident in any event).

Other Matters. Investors should be aware that the investments
to be made by the Funds may involve sophisticated tax rules such as the
original issue discount, marked to market and real estate mortgage investment
conduit ("REMIC") rules that would result in income or gain recognition by the
Funds without corresponding current cash receipts. Although the Funds will seek
to avoid significant noncash income, such noncash income could be recognized by
the Funds, in which case a Fund may distribute cash derived from other sources
in order to meet the minimum distribution requirements described above.

<PAGE> 49

Special Tax Considerations For New Asia Growth Fund

Due to investment laws in certain developing countries in
Asia, it is anticipated that New Asia Growth Fund's investments in equity
securities in such countries will consist primarily of shares of investment
companies (or similar investment entities) organized under foreign law or of
ownership interests in special accounts, trusts or partnerships. New Asia
Growth Fund may invest up to 10% of its total assets in securities of
closed-end investment companies. If New Asia Growth Fund purchases shares of an
investment company (or similar investment entity) organized under foreign law,
New Asia Growth Fund will be treated as owning shares in a passive foreign
investment company ("PFIC") for U.S. federal income tax purposes. New Asia
Growth Fund may be subject to U.S. federal income tax, and an additional tax in
the nature of interest, on a portion of the distributions from such a company
and on gain from the disposition of the shares of such company (collectively
referred to as "excess distributions"), even if such excess distributions are
paid by New Asia Growth Fund as a dividend to its shareholders. New Asia Growth
Fund may be eligible to make an election with respect to certain PFICs in which
it owns shares that will allow it to avoid the taxes on excess distributions.
However, such election may cause New Asia Growth Fund to recognize income in a
particular year in excess of the distributions received from such PFICs.
Alternatively, New Asia Growth Fund may elect to "mark-to-market" at the end of
each taxable year all shares that it holds in PFICs. If it makes this election,
New Asia Growth Fund will recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, will not be recognized. By
making the mark-to-market election, New Asia Growth Fund can avoid imposition
of the interest charge with respect to its distributions from PFICs, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
stock.

Special Tax Considerations for the Tax-Free Funds.

Federal -- The portion of total dividends paid by the Tax-Free
Funds with respect to any taxable year that qualifies for exclusion from gross
income ("exempt-interest dividends") will be the same for all shareholders
receiving dividends during such year. In order for the Tax-Free Funds to pay
exempt-interest dividends during any taxable year, at the close of each fiscal
quarter at least 50% of the aggregate value of the Tax-Free Funds assets,
respectively, must consist of tax-exempt securities. In addition, the Tax-Free
Funds must distribute 90% of the aggregate interest excludable from gross
income (net of non-deductible expenses) and 90% of the investment company
taxable income earned by it during the taxable year. Not later than 60 days
after the close of its taxable year, the Tax-Free Funds will notify each
shareholder of the portion of the dividends paid with respect to such taxable
year which constitutes exempt-interest dividends. The aggregate amount of
dividends so designated cannot exceed the excess of the amount of interest
excludable from gross income under Section 103 of the Code received by such
Funds during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. In addition, market discount earned on
tax-exempt obligations will not qualify as tax-exempt income.

The Code treats interest on private activity bonds, as defined
therein, as an item of tax preference subject to an alternative minimum tax on
individuals and corporations at the applicable tax rates. Further,
exempt-interest dividends are includable in adjusted current earnings in
calculating corporate alternative minimum taxable income. Except for temporary
defensive purposes, the Trust will not invest in the types of Municipal
Obligations which would give rise to interest that would be treated as a
preference

<PAGE> 50

subject to alternative minimum taxation if more than 20% of its net assets would
be so invested, and may refrain from investing in that type of bond completely.

In addition, any loss realized by a shareholder upon the sale
or redemption of shares of a Fund held less than six months is disallowed to
the extent of any exempt-interest dividends received by the shareholder.

Shareholders who may be "substantial users" (or related
persons of substantial users) with respect to municipal securities held by the
Tax-Free Funds should consult their tax advisers to determine whether
exempt-interest dividends paid by the Funds with respect to such obligations
retain their federal exclusions.

Hawaiian Tax Information. The Tax-Free Funds, and dividends
and distributions made by the Tax-Free Funds to Hawaii residents, will
generally be treated for Hawaii income tax purposes in the same manner as they
are treated under the Code for federal income tax purposes. If at the close of
each quarter of the Tax-Free Funds' taxable year at least 50% of the value of
its total assets consists of obligations the interest on which, if such
obligations were held by an individual, would be exempt from Hawaii personal
income tax (under either the laws of Hawaii or of the United States), the
TaxFree Funds will be entitled to pay dividends to its shareholders which will
be exempt from Hawaii personal income tax. Similar exemptions may be available
in other states with regard to the portion of tax-exempt dividends attributable
to interest exempt from state taxation under federal law. Under Hawaii law,
however, interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaii income taxation.
(Interest derived from bonds or obligations issued by or under the authority of
the following is exempt from Hawaii income taxation: Guam, Northern Mariana
Islands, Puerto Rico, and the Virgin Islands.)

Interest on Hawaiian Municipal Obligations, tax-exempt
obligations of states other than Hawaii and their political subdivisions, and
obligations of the United States or its possessions is not exempt from the
Hawaii Franchise Tax. This tax applies to banks, building and loan associations,
industrial loan companies, financial corporations, and small business investment
companies.

Persons or entities who are not Hawaii residents should not be
subject to Hawaii income taxation on dividends and distributions made by the
Trust but will be subject to other state and local taxes.

Other Matters. Shares of the Tax-Free Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since
such plans and accounts are generally tax-exempt and, therefore, would not
benefit from the exempt status of dividends from such Funds. Such dividends
would be ultimately taxable to the beneficiaries when distributed to them.

CAPITAL STOCK
Each Fund is comprised of three classes of shares -- "Class
A", "Class B" and "Class Y" -- each comprised of an unlimited number of units
of beneficial interest in the Trust. When certain matters affect one class but
not another, the shareholders will vote as a class regarding such matters.
Subject to the foregoing, on any matter submitted to a vote of shareholders,
all shares then entitled to vote will be voted separately by Fund unless
otherwise required by the 1940 Act, in which

<PAGE> 51

case all shares will be voted in the aggregate. For example, a change in a
Fund's fundamental investment policies would be voted upon only by shareholders
of the Fund involved. Additionally, approval of the advisory agreement is a
matter to be determined separately by Fund. Approval by the shareholders of one
Fund is effective as to that Fund whether or not sufficient votes are received
from the shareholders of the other Funds to approve the proposal as to those
Funds. As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Fund means the vote
of the lesser of (i) 67% of the shares of the Fund represented at a meeting if
the holders of more than 50% of the outstanding shares of the Fund are present
in person or by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the Trust as a whole means the vote of the lesser of (i) 67% of
the Trust's shares represented at a meeting if the holders of more than 50% of
the Trust's outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Trust's outstanding shares. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.

The Trust may dispense with annual meetings of shareholders in
any year in which it is not required to elect Trustees under the 1940 Act.
However, the Trust undertakes to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.

Each share of a class of a Fund represents an equal
proportional interest in that Fund or portfolio with each other share of the
same class and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that Fund or portfolio as are declared
in the discretion of the Trustees. In the event of the liquidation or
dissolution of the Trust, shareholders of a Fund or portfolio are entitled to
receive the assets attributable to that Fund or portfolio that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Trustees in their sole discretion may determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Trust.

As of September 1, 1997 the persons set forth below were known
by the Trust to own of record or beneficially 5% or more of the Class A or
Class Y shares, as applicable, of the indicated Fund. Unless otherwise
indicated, the address of STROBRO, REINCO and HAWCO is Pacific Century Trust,
P.O. Box 3170, Honolulu, HI 96802. In addition, unless otherwise indicated, the
address of BHC Securities, Inc. is Attn: Mutual Funds, 1 Commerce Street, 2005
Market Street, Suite 12000, Philadelphia, PA 19103.

<PAGE> 52

<TABLE>
<CAPTION>
Percentage of
Shares Held of
CLASS Y SHARES Record Or Beneficially
- -------------- ----------------------
<S> <C>
Diversified Fixed Income Securities Fund

STROBRO 47.4%

HAWCO 51.8%

Growth and Income Fund

STROBRO 50.7%

HAWCO 45.9%

Growth Stock Fund

REINCO 7.1%

STROBRO 50.0%

HAWCO 39.7%

New Asia Growth Fund

Vanguard Fiduciary Trust Company 8.4%
P.O. Box 2600
V.M. 421
Valley Forge, PA 19482

HAWCO 42.2%

REINCO 18.8%

STROBRO 26.1%

Short Intermediate U.S. Treasury
Securities Fund

HAWCO 65.8%

REINCO 5.3%

STROBRO 28.6%
</TABLE>

<PAGE> 53

<TABLE>
<S> <C>
Tax-Free Securities Fund

STROBRO 95.2%

Tax-Free Short Intermediate
Securities Fund

STROBRO 86.5%

HAWCO 11.2%

U.S. Treasury Securities Fund

REINCO 87.6%

CLASS A SHARES

Diversified Fixed Income Fund

BHC Securities, Inc. 90.9%

Growth and Income Fund

BHC Securities, Inc. 86.9%

Growth Stock Fund

BHC Securities, Inc. 72.8%

Arrow & Co 16.3%

New Asia Growth Fund

Merrill Lynch Pierce Fenner & Smith Incorporated 11.8%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
</TABLE>

<PAGE> 54

<TABLE>
<S> <C>
BHC Securities, Inc. 84.4%

Short-Intermediate U.S. Treasury
Securities Fund

BHC Securities, Inc. 81.3%

Merrill Lynch Pierce Fenner & Smith Incorporated 8.3%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246

Tax-Free Short Intermediate
Securities Fund

Douglas Philpotts Trustee 26.8%
c/o Douglas Philpotts
94B Polipoli
Kula, Hawaii 96790

BHC Securities, Inc. 61.9%

Wedbush Morgan Securities, Inc. 8.0%
P.O. Box 71584
Los Angeles, California 90071

Tax-Free Securities Fund

Douglas Philpotts Trustee 20.7%
c/o Douglas Philpotts
94B Polipoli
Kula, Hawaii 96790

BHC Securities, Inc. 18.7%

Elizabeth Godfrey 5.0%

Arrow & Co. 40.4%
P.O. Box 30010
Durham, Gort Carolina 27702
Wedbush Morgan Securities Inc. 10.2%

U.S. Treasury Securities Fund

Hugh Shearer Trustee 6.3%
P.O. Box 3196
Honolulu, HI 96801

BHC Securities, Inc. 73.1%

Merrill Lynch Pierce Fenner & Smith Incorporated 12.0%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
</TABLE>

<PAGE> 55

CUSTODIAN

Bank One Trust Company, N.A. ("Bank One") has been retained
to act as Custodian for Balanced Fund, Diversified Fixed Income Fund, Growth
and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund. Union Bank of California, formerly Mitsubishi
("Bank of California") has been retained as Custodian for New Asia Growth Fund.
With regard to each Fund, the relevant Custodian, among other things, maintains
a custody account or accounts in the name of the Fund; receives and delivers
all assets for the Fund upon purchase and upon sale or maturity; collects and
receives all income and other payments and distributions on account of the
assets of each Fund and pays all expenses of the Fund. For its services as
Custodian, each of Bank One and Bank of California, respectively, receives an
asset-based fee.

OTHER

The Registration Statement, including the Prospectus, the
Statement of Additional Information and the exhibits filed therewith, may be
examined at the office of the Commission in Washington, D.C. Statements
contained in the Prospectus or the Statement of Additional Information as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

INDEPENDENT AUDITORS

The financial statements of Pacific Capital Funds as of July
31, 1997, appearing in this Statement of Additional Information, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and is included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

Ernst & Young LLP has been selected as the independent
auditors for the Pacific Capital Funds. Ernst & Young LLP provides audit
services, tax return preparation and

<PAGE> 56

assistance and consultation in connection with certain Commission filings. Ernst
& Young LLP is located at One Columbus, Suite 2300, 10 West Broad Street,
Columbus, Ohio 43215.

FINANCIAL INFORMATION

Included in this Statement of Additional Information are the
audited financial statements for the Class A and Class Y shares of each Fund at
July 31, 1997. Financial statements are not provided for Class B shares of each
Fund or for Balanced Fund since Class B shares of each Fund and Balanced Fund
had not yet commenced operations as of the date of this Statement of Additional
Information.

<PAGE> 57
REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Pacific Capital Funds

We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, of the Pacific Capital Funds
(comprising, respectively, the Growth Stock Fund, U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income
Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund, and New Asia Growth Fund) as of July 31, 1997,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights presented herein for each of the
respective years or periods in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Pacific Capital Funds as of July 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights presented herein for each of the respective years or
periods in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP

Columbus, Ohio
September 12, 1997

57
<PAGE> 58
PACIFIC CAPITAL FUNDS

STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GROWTH U.S. TREASURY U.S. TREASURY
STOCK SECURITIES SECURITIES GROWTH AND
FUND FUND FUND INCOME FUND
------------ ------------- ------------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $125,420,032;
$22,918,222;
$26,669,931; and
$90,175,740,
respectively).......... $208,844,861 $24,392,861 $26,968,639 $127,413,189
Interest and dividends
receivable.............. 152,073 545,520 383,909 175,774
Receivable for capital
shares issued........... 14,381 13,740 16,616 70,210
Prepaid expenses and
other assets............ -- -- 81 291
------------ ----------- ----------- ------------
Total Assets.......... 209,011,315 24,952,121 27,369,245 127,659,464
------------ ----------- ----------- ------------
LIABILITIES:
Dividends payable....... -- 7,508 8,046 --
Payable to brokers for
investments purchased... 666,002 -- -- --
Accrued expenses and
other payables:
Investment advisory
fees................... 137,104 12,374 6,810 83,957
Administration fees.... 5,424 632 660 3,324
Distribution fees--
Retail Class........... 1,992 226 127 733
Fund accounting fees... 1,199 29 460 1,041
Transfer agent fees.... 3,558 2,452 2,124 1,902
Trustees' fees......... 5,738 748 774 2,315
Custodian fees......... 1,289 534 856 --
Legal fees............. 8,864 2,817 3,591 6,273
Audit fees............. 19,380 2,548 2,775 8,065
Printing costs......... 10,564 2,765 2,110 4,285
Other.................. 995 300 465 212
------------ ----------- ----------- ------------
Total Liabilities..... 862,109 32,933 28,798 112,107
------------ ----------- ----------- ------------
NET ASSETS:
Capital................. 110,174,854 27,582,163 27,193,087 83,775,351
Undistributed
(distributions in excess
of) net investment
income.................. (14,687) (35,524) 40 44,608
Accumulated
undistributed net
realized gains (losses)
from investment
transactions........... 14,564,210 (4,102,090) (151,388) 6,489,949
Unrealized appreciation
from investments........ 83,424,829 1,474,639 298,708 37,237,449
------------ ----------- ----------- ------------
Net Assets............ $208,149,206 $24,919,188 $27,340,447 $127,547,357
============ =========== =========== ============
Net Assets
Retail Class........... $ 9,742,529 $ 1,087,438 $ 618,637 $ 3,725,915
Institutional Class.... 198,406,677 23,831,750 26,721,810 123,821,442
------------ ----------- ----------- ------------
Total................. $208,149,206 $24,919,188 $27,340,447 $127,547,357
============ =========== =========== ============
Outstanding units of
beneficial interest
(shares)
Retail Class........... 559,075 116,045 64,800 215,980
Institutional Class.... 11,375,655 2,541,120 2,793,910 7,171,253
------------ ----------- ----------- ------------
Total................. 11,934,730 2,657,165 2,858,710 7,387,233
============ =========== =========== ============
Net Asset Value
Retail Class--
redemption price per
share.................. $ 17.43 $ 9.37 $ 9.55 $ 17.25
============ =========== =========== ============
Retail Class--maximum
sales charge........... 4.00% 4.00% 2.25% 4.00%
------------ ----------- ----------- ------------
Retail Class--maximum
offering price per
share
(100%/(100%-maximum
sales charge) of net
asset value adjusted
to nearest cent)...... $ 18.16 $ 9.76 $ 9.77 $ 17.97
============ =========== =========== ============
Institutional Class--
offering and redemption
price per share......... $ 17.44 $ 9.38 $ 9.56 $ 17.27
============ =========== =========== ============
</TABLE>

See notes to financial statements.

58
<PAGE> 59

PACIFIC CAPITAL FUNDS

STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<CAPTION>
TAX-FREE
DIVERSIFIED TAX-FREE SHORT INTERMEDIATE
FIXED INCOME SECURITIES SECURITIES NEW ASIA
FUND FUND FUND GROWTH FUND
------------ ------------ ------------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $127,758,477;
$273,111,775;
$38,681,464; and
$19,750,749,
respectively).......... $131,523,476 $296,205,350 $39,279,168 $21,426,264
Foreign currency (Cost
$700,940).............. -- -- -- 689,471
Interest and dividends
receivable............. 2,302,810 3,421,498 404,664 35,121
Receivable for capital
shares issued.......... 19,834 -- -- 10,502
Receivable from brokers
for investments sold... -- -- -- 290,000
Prepaid expenses and
other assets........... -- 4,947 -- 19,636
------------ ------------ ----------- -----------
Total Assets.......... 133,846,120 299,631,795 39,683,832 22,470,994
------------ ------------ ----------- -----------
LIABILITIES:
Dividends payable....... 40,594 75,538 7,732 --
Payable to brokers for
investments purchased.. -- -- 1,500,000 586,740
Unrealized losses on
forward foreign
currency contracts..... -- -- -- 644
Accrued expenses and
other payables:
Investment advisory
fees.................. 66,691 150,656 16,238 16,230
Administration fees.... 3,460 7,839 935 536
Distribution fees--
Retail Class.......... 225 533 155 712
Fund accounting fees... 1,400 1,354 347
Transfer agent fees.... 3,447 3,250 2,536 1,613
Trustees' fees......... 4,113 8,744 1,140 290
Custodian fees......... 2,221 5,413 1,448 11,974
Legal fees............. 9,655 15,578 5,016 --
Audit fees............. 14,654 30,019 4,300 2,782
Printing costs......... 13,110 23,995 2,959 14,319
Other.................. 471 934 5,657 208
------------ ------------ ----------- -----------
Total Liabilities..... 160,041 322,499 1,549,470 636,395
------------ ------------ ----------- -----------
NET ASSETS:
Capital................. 132,482,157 275,206,266 37,363,214 18,399,844
Undistributed
(distributions in
excess of) net
investment income...... -- -- -- (64,536)
Accumulated
undistributed net
realized gains (losses)
from investment and
foreign currency
transactions........... (2,561,077) 1,009,455 173,444 1,836,687
Unrealized appreciation
from investments....... 3,764,999 23,093,575 597,704 1,675,515
Unrealized depreciation
from translation of
assets
and liabilities in
foreign currency....... -- -- -- (12,911)
------------ ------------ ----------- -----------
Net Assets............ $133,686,079 $299,309,296 $38,134,362 $21,834,599
============ ============ =========== ===========
Net Assets
Retail Class........... $ 1,103,189 $ 2,544,893 $ 724,724 $ 3,458,603
Institutional Class.... 132,582,890 296,764,403 37,409,638 18,375,996
------------ ------------ ----------- -----------
Total................. $133,686,079 $299,309,296 $38,134,362 $21,834,599
============ ============ =========== ===========
Outstanding units of
beneficial interest
(shares)
Retail Class........... 103,034 234,871 71,289 249,040
Institutional Class.... 12,296,236 27,323,380 3,664,505 1,318,129
------------ ------------ ----------- -----------
Total................. 12,399,270 27,558,251 3,735,794 1,567,169
============ ============ =========== ===========
Net Asset Value
Retail Class--
redemption price per
share................. $ 10.71 $ 10.84 $ 10.17 $ 13.89
============ ============ =========== ===========
Retail Class--maximum
sales charge.......... 4.00% 4.00% 2.25% 5.25%
------------ ------------ ----------- -----------
Retail Class--maximum
offering price per
share
(100%/(100%-maximum
sales charge) of net
asset value adjusted
to nearest cent)...... $ 11.16 $ 11.29 $ 10.40 $ 14.66
============ ============ =========== ===========
Institutional Class--
offering and
redemption price per
share................. $ 10.78 $ 10.86 $ 10.21 $ 13.94
============ ============ =========== ===========
</TABLE>

See notes to financial statements.

59
<PAGE> 60

PACIFIC CAPITAL FUNDS

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997

<TABLE>
<CAPTION>
SHORT INTERMEDIATE
U.S. TREASURY U.S. TREASURY GROWTH AND
GROWTH STOCK SECURITIES SECURITIES INCOME
FUND FUND FUND FUND
------------ ------------- ------------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......... $ 53,417 $1,624,911 $1,443,919 $ 3,116
Dividend income......... 2,796,184 15,979 13,758 1,791,271
----------- ---------- ---------- -----------
Total Income.......... 2,849,601 1,640,890 1,457,677 1,794,387
----------- ---------- ---------- -----------
EXPENSES:
Investment advisory
fees.................. 1,499,559 145,470 119,586 768,642
Administration fees..... 375,496 48,551 47,835 192,634
Distribution fees--
Retail Class.......... 49,247 7,902 5,592 15,806
Custodian fees.......... 10,274 -- -- 4,338
Accounting fees......... 58,423 8,369 8,990 31,379
Legal fees.............. 34,886 5,787 7,072 18,996
Audit fees.............. 21,398 2,555 2,783 10,083
Trustees' fees and
expenses.............. 21,030 2,007 2,646 8,622
Transfer agent fees..... 20,668 13,733 13,140 14,874
Registration and filing
fees.................... 11,744 661 2,572 9,216
Printing costs.......... 29,881 1,789 3,152 12,956
Other................... 4,702 776 548 1,963
----------- ---------- ---------- -----------
Total expenses before
voluntary fee
reductions........ 2,137,308 237,600 213,916 1,089,509
Expenses voluntarily
reduced........... (108,462) (15,031) (63,679) (49,464)
----------- ---------- ---------- -----------
Net Expenses.......... 2,028,846 222,569 150,237 1,040,045
----------- ---------- ---------- -----------
Net Investment Income... 820,755 1,418,321 1,307,440 754,342
----------- ---------- ---------- -----------
REALIZED/UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains
(losses) on investment
transactions........... 18,904,660 (192,623) (52,500) 7,101,576
Net change in unrealized
appreciation
(depreciation) on
investments............ 54,151,452 873,271 504,853 31,411,841
----------- ---------- ---------- -----------
Net realized/unrealized
gains (losses) on
investments.......... 73,056,112 680,648 452,353 38,513,417
----------- ---------- ---------- -----------
Change in net assets
resulting from
operations......... $73,876,867 $2,098,969 $1,759,793 $39,267,759
=========== ========== ========== ===========
</TABLE>

See notes to financial statements.

60
<PAGE> 61

PACIFIC CAPITAL FUNDS

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997

<TABLE>
<CAPTION>
TAX-FREE
DIVERSIFIED TAX-FREE SHORT INTERMEDIATE NEW ASIA
FIXED INCOME SECURITIES SECURITIES GROWTH
FUND FUND FUND FUND
------------ ----------- ------------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......... $ 9,405,764 $16,734,532 $1,804,935 $ --
Dividend income......... 108,622 51,542 16,239 391,949
Foreign tax withholding. -- -- -- (28,545)
----------- ----------- ---------- ----------
Total Income.......... 9,514,386 16,786,074 1,821,174 363,404
----------- ----------- ---------- ----------
EXPENSES:
Investment advisory
fees................... 867,869 1,756,304 195,480 149,300
Administration fees..... 289,515 586,170 78,274 33,272
Distribution fees--
Retail Class........... 8,426 9,531 6,001 20,429
Custodian fees.......... 7,941 24,869 9,080 57,856
Accounting fees......... 48,581 98,573 17,205 11,733
Legal fees.............. 31,260 55,302 10,433 1,825
Audit fees.............. 16,480 32,850 4,608 2,783
Organization costs...... -- -- -- 12,728
Trustees' fees and
expenses............... 15,638 32,709 4,653 958
Transfer agent fees..... 19,117 25,322 14,326 12,182
Registration and filing
fees................... 34,949 4,609 5,948 2,829
Printing costs.......... 22,301 41,181 6,250 17,611
Other................... 3,926 7,305 1,050 136
----------- ----------- ---------- ----------
Total expenses before
voluntary fee
reductions and
reimbursements....... 1,366,003 2,674,725 353,308 323,642
Expenses voluntarily
reduced............... (63,704) (124,192) (23,635) (29,803)
----------- ----------- ---------- ----------
Net Expenses.......... 1,302,299 2,550,533 329,673 293,839
----------- ----------- ---------- ----------
Net Investment Income... 8,212,087 14,235,541 1,491,501 69,565
----------- ----------- ---------- ----------
REALIZED/UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains
(losses) on investment
transactions........... (2,549,993) 1,060,114 240,632 1,836,689
Net realized gains
(losses) on foreign
currency transactions.. -- -- -- (80,544)
Net change in unrealized
appreciation
(depreciation) on
investments............ 7,498,463 11,477,661 306,192 2,113,745
Net change in unrealized
appreciation
(depreciation) on
translation
of assets and
liabilities in foreign
currencies............. -- -- -- (13,022)
----------- ----------- ---------- ----------
Net realized/unrealized
gains (losses) on
investments and
foreign currencies..... 4,948,470 12,537,775 546,824 3,856,868
----------- ----------- ---------- ----------
Change in net assets
resulting from
operations.............. $13,160,557 $26,773,316 $2,038,325 $3,926,433
=========== =========== ========== ==========
</TABLE>

See notes to financial statements.

61
<PAGE> 62

PACIFIC CAPITAL FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GROWTH STOCK FUND U.S. TREASURY SECURITIES FUND U.S. TREASURY SECURITIES FUND
---------------------------- ------------------------------- -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income.. $ 820,755 $ 1,444,330 $ 1,418,321 $ 1,665,167 $ 1,307,440 $ 1,106,083
Net realized gains
(losses) on investment
transactions.......... 18,904,660 2,853,413 (192,623) 610,897 (52,500) (66,180)
Net change in
unrealized
appreciation
(depreciation) on
investments........... 54,151,452 9,013,715 873,271 (980,793) 504,853 (370,513)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
resulting from
operations............. 73,876,867 13,311,458 2,098,969 1,295,271 1,759,793 669,390
------------ ------------ -------------- -------------- -------------- --------------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (13,022) (26,967) (52,996) (58,924) (38,945) (44,406)
In excess of net
investment income..... (3,861) -- (7,810) (9,639) -- (3,140)
From net realized
gains................. (24) (73,928) -- -- -- --
In excess of net
realized gains........ -- (168,943) -- -- -- (2,008)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (857,427) (1,401,180) (1,365,325) (1,606,243) (1,268,495) (1,061,677)
In excess of net
investment income..... (17,466) -- (32,190) (262,742) -- (75,078)
From net realized
gains................. (777) (2,779,485) -- -- -- --
In excess of net
realized gains........ -- (6,351,795) -- -- -- (35,758)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
from shareholder
distributions.......... (892,577) (10,802,298) (1,458,321) (1,937,548) (1,307,440) (1,222,067)
------------ ------------ -------------- -------------- -------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 39,726,376 133,828,085 1,643,143 1,647,781 12,120,256 18,121,546
Dividends reinvested... 92,112 6,438,745 1,415,273 1,902,174 92,421 158,516
Cost of shares
redeemed.............. (82,478,968) (105,692,774) (3,007,324) (30,979,541) (10,025,991) (9,729,562)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
from share
transactions........... (42,660,480) 34,574,056 51,092 (27,429,586) 2,186,686 8,550,500
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets.... 30,323,810 37,083,216 691,740 (28,071,863) 2,639,039 7,997,823
NET ASSETS:
Beginning of period.... 177,825,396 140,742,180 24,227,448 52,299,311 24,701,408 16,703,585
------------ ------------ -------------- -------------- -------------- --------------
End of period.......... $208,149,206 $177,825,396 $24,919,188 $24,227,448 $27,340,447 $24,701,408
============ ============ ============== ============== ============== ==============
SHARE TRANSACTIONS:
Issued................. 2,786,983 11,098,985 178,092 173,866 1,287,668 1,882,513
Reinvested............. 6,775 541,450 153,769 200,813 9,773 16,520
Redeemed............... (5,810,150) (8,707,702) (325,626) (3,272,020) (1,060,313) (1,016,011)
------------ ------------ -------------- -------------- -------------- --------------
Change in shares........ (3,016,392) 2,932,733 6,235 (2,897,341) 237,128 883,022
============ ============ ============== ============== ============== ==============
</TABLE>

See notes to financial statements.

62
<PAGE> 63

PACIFIC CAPITAL FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND DIVERSIFIED FIXED INCOME FUND TAX-FREE SECURITIES FUND
---------------------------- ------------------------------- ----------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income.. $ 754,342 $ 897,198 $ 8,212,087 $ 7,564,301 $ 14,235,541 $ 14,113,815
Net realized gains
(losses) on investment
transactions.......... 7,101,576 4,517,339 (2,549,993) 1,793,439 1,060,114 2,578,744
Net change in
unrealized
appreciation
(depreciation) on
investments........... 31,411,841 1,140,677 7,498,463 (6,350,290) 11,477,661 (505,505)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
resulting from
operations............. 39,267,759 6,555,214 13,160,557 3,007,450 26,773,316 16,187,054
------------ ----------- -------------- -------------- ------------ ------------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (9,645) (6,661) (61,085) (29,853) (58,439) (36,401)
In excess of net
investment income..... (2,559) (198) -- (1,073) -- (3,016)
From net realized
gains................. (74,382) (10,087) -- -- (3,793) (5,488)
In excess of net
realized gains........ -- -- (10,239) (5,216) -- (2,095)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (719,837) (890,537) (8,151,002) (7,534,448) (14,177,102) (14,077,414)
In excess of net
investment income..... -- (26,449) -- (270,854) -- (1,166,451)
From net realized
gains................. (3,890,622) (1,430,857) -- -- (1,632,634) (2,573,256)
In excess of net
realized gains........ -- -- (1,342,055) (1,188,466) -- (982,014)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
from shareholder
distributions.......... (4,697,045) (2,364,789) (9,564,381) (9,029,910) (15,871,968) (18,846,135)
------------ ----------- -------------- -------------- ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 45,972,983 51,831,280 45,518,283 199,818,303 33,235,182 29,212,660
Dividends reinvested... 2,407,024 1,252,724 669,521 891,166 1,633,767 3,570,050
Cost of shares
redeemed.............. (30,990,437) (23,786,655) (78,932,125) (86,706,905) (35,963,665) (22,829,691)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
from share
transactions........... 17,389,570 29,297,349 (32,744,321) 114,002,564 (1,094,716) 9,953,019
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets.... 51,960,284 33,487,774 (29,148,145) 107,980,104 9,806,632 7,293,938
NET ASSETS:
Beginning of period.... 75,587,073 42,099,299 162,834,224 54,854,120 289,502,664 282,208,726
------------ ----------- -------------- -------------- ------------ ------------
End of period.......... $127,547,357 $75,587,073 $133,686,079 $162,834,224 $299,309,296 $289,502,664
============ =========== ============== ============== ============ ============
SHARE TRANSACTIONS:
Issued................. 3,234,048 4,307,112 4,316,676 18,193,814 3,152,571 2,767,223
Reinvested............. 178,441 105,986 62,706 80,018 153,874 333,366
Redeemed............... (2,162,896) (1,958,541) (7,448,705) (7,867,181) (3,412,859) (2,160,738)
------------ ----------- -------------- -------------- ------------ ------------
Change in shares........ 1,249,593 2,454,557 (3,069,323) 10,406,651 (106,414) 939,851
============ =========== ============== ============== ============ ============
</TABLE>

See notes to financial statements.

63
<PAGE> 64

PACIFIC CAPITAL FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
TAX-FREE SHORT INTERMEDIATE
SECURITIES FUND NEW ASIA GROWTH FUND
--------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income
(loss)................ $ 1,491,501 $ 1,577,123 $ 69,565 $ (4,037)
Net realized gains
(losses) on investment
transactions.......... 240,632 247,802 1,836,689 187,718
Net realized gains
(losses) on foreign
currency transactions. -- -- (80,544) (55,916)
Net change in
unrealized
appreciation
(depreciation) on
investments........... 306,192 (381,865) 2,113,745 (603,577)
Net change in
unrealized
appreciation
(depreciation) on
translation
of assets and
liabilities in foreign
currencies............ -- -- (13,022) 3,412
----------- ----------- ----------- -----------
Change in net assets
resulting from
operations.............. 2,038,325 1,443,060 3,926,433 (472,400)
----------- ----------- ----------- -----------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (28,544) (12,490) (770) --
In excess of net
investment income..... -- (1,065) (714) (1,121)
From net realized
gains................. (986) -- (24,563) (15,201)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (1,462,957) (1,564,633) (15,241) --
In excess of net
investment income..... -- (133,354) -- (7,846)
From net realized
gains................. (49,244) -- (130,393) (63,590)
----------- ----------- ----------- -----------
Change in net assets
from shareholder
distributions........... (1,541,731) (1,711,542) (171,681) (87,758)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 6,196,477 7,865,169 11,076,770 10,749,362
Dividends reinvested... 67,282 9,183 103,064 59,730
Cost of shares
redeemed.............. (8,549,132) (7,982,805) (3,558,390) (2,981,295)
----------- ----------- ----------- -----------
Change in net assets
from share transactions. (2,285,373) (108,453) 7,621,444 7,827,797
----------- ----------- ----------- -----------
Change in net assets.... (1,788,779) (376,935) 11,376,196 7,267,639
NET ASSETS:
Beginning of period.... 39,923,141 40,300,076 10,458,403 3,190,764
----------- ----------- ----------- -----------
End of period.......... $38,134,362 $39,923,141 $21,834,599 $10,458,403
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued................. 613,972 773,603 902,626 910,887
Reinvested............. 6,643 907 8,369 5,614
Redeemed............... (845,154) (788,553) (283,285) (261,382)
----------- ----------- ----------- -----------
Change in shares........ (224,539) (14,043) 627,710 655,119
=========== =========== =========== ===========
</TABLE>

See notes to financial statements.

64
<PAGE> 65

PACIFIC CAPITAL FUNDS
GROWTH STOCK FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (98.2%):
Aerospace/Defense (1.0%):
35,925 General Motors Corp., Class H........................ $ 2,171,217
------------
Banks (2.4%):
39,000 BankAmerica Corp..................................... 2,944,500
17,850 Chase Manhattan Corp................................. 2,027,091
------------
4,971,591
------------
Beverages (6.5%):
68,575 Anheuser Busch Co., Inc.............................. 2,944,439
85,925 Coca-Cola Co......................................... 5,950,306
120,850 PepsiCo, Inc......................................... 4,630,066
------------
13,524,811
------------
Chemicals (2.0%):
48,075 Avery Dennison Corp.................................. 2,121,310
58,250 Sigma-Aldrich........................................ 2,016,906
------------
4,138,216
------------
Computers & Peripherals (7.4%):
70,500 Cisco Systems (b).................................... 5,609,155
95,500 Compaq Computer Corp. (b)............................ 5,455,438
27,050 Hewlett Packard Co................................... 1,895,191
52,200 Sun Microsystems, Inc. (b)........................... 2,384,888
------------
15,344,672
------------
Electrical Equipment (7.1%):
45,525 C-Cube Microsystems Inc. (b)......................... 1,098,291
144,800 General Electric Co.................................. 10,163,149
44,500 SCI Systems, Inc. (b)................................ 3,534,969
------------
14,796,409
------------
Electronic & Electrical (1.5%):
52,875 Emerson Electric Co.................................. 3,119,625
------------
Entertainment (1.4%):
35,400 Walt Disney Co....................................... 2,860,763
------------
Financial Services (2.6%):
57,025 Paine Webber Group, Inc.............................. 2,281,000
21,350 Student Loan Marketing Assoc......................... 3,201,166
------------
5,482,166
------------
Food Distributors (1.6%):
89,000 Sysco Corp........................................... 3,320,813
------------
Food Processing & Packaging (7.3%):
65,450 ConAgra, Inc. ...................................... $ 4,601,953
46,325 Pioneer Hi-Bred International, Inc.................. 3,428,050
117,900 Sara Lee Corp....................................... 5,165,493
25,000 Wm. Wrigley Jr. Co.................................. 1,923,438
------------
15,118,934
------------
Funeral Services (1.8%):
109,950 Service Corp. International......................... 3,738,300
------------
Health Care (3.2%):
85,075 Columbia HCA Healthcare............................. 2,743,668
46,200 Health Management Assoc. (b)........................ 1,475,513
28,450 Oxford Health Plans Inc. (b)........................ 2,391,578
------------
6,610,759
------------
Insurance (2.9%):
55,875 American International Group, Inc................... 5,950,688
------------
Manufacturing (2.0%):
39,100 Illinois Tool Works, Inc............................ 2,028,313
21,700 Minnesota Mining &
Manufacturing Co................................... 2,056,075
------------
4,084,388
------------
Medical Supplies (1.3%):
30,000 Medtronic, Inc...................................... 2,617,500
------------
Metal & Mineral Production (0.6%):
52,775 Barrick Gold Corp................................... 1,203,930
------------
Oil & Gas Exploration, Production, &
Services (1.8%):
49,000 Mobil Corp.......................................... 3,748,500
------------
Oilfield Equipment & Services (0.7%):
17,800 Schlumberger Ltd.................................... 1,359,475
------------
Paint, Varnishes, Enamels (1.4%):
93,650 Sherwin Williams Co................................. 3,002,653
------------
Pharmaceuticals (12.9%):
64,950 Abbott Laboratories................................. 4,250,166
44,550 American Home Products Corp......................... 3,672,591
40,000 Eli Lilly & Co...................................... 4,519,999
89,000 Johnson & Johnson, Inc.............................. 5,545,812
58,150 Merck & Co. Inc..................................... 6,043,965
</TABLE>

Continued

65
<PAGE> 66

PACIFIC CAPITAL FUNDS
GROWTH STOCK FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals, continued
52,300 Pfizer, Inc......................................... $ 3,118,388
------------
27,150,921
------------
Retail (4.2%):
71,950 Dollar General Corp................................. 3,165,800
37,975 Kohl's Corp. (b).................................... 2,392,425
85,400 Wal-Mart Stores, Inc................................ 3,207,838
------------
8,766,063
------------
Retail--Grocery Stores (1.5%):
85,300 Albertsons, Inc..................................... 3,161,431
------------
Semiconductors (2.0%):
46,300 Intel Corp.......................................... 4,250,919
------------
Services (Commercial/Consumer) (1.1%):
123,500 Sothebys Holdings, Inc., Class A.................... 2,223,000
------------
Soaps & Cleaning Agents (2.1%):
28,075 Procter & Gamble Co................................. 4,270,909
------------
Software & Computer Services (7.7%):
26,675 BMC Software Inc. (b)............................... 1,607,169
41,000 Computer Associates International, Inc.............. 2,790,563
55,725 Microsoft Corp. (b)................................. 7,885,087
72,475 Oracle Systems Corp. (b)............................ 3,945,357
------------
16,228,176
------------
Steel (0.5%):
15,875 Nucor Corp........................................... $ 985,242
------------
Technology--Services (Data Processing) (1.2%):
52,550 Automatic Data Processing, Inc....................... 2,601,225
------------
Telecommunications (0.8%):
51,150 Alltel Corp.......................................... 1,681,556
------------
Tobacco & Tobacco Products (2.0%):
93,975 Philip Morris Cos., Inc.............................. 4,240,622
------------
Transportation--Air (1.2%):
87,575 Southwest Airlines Co................................ 2,556,095
------------
Utilities--Telecommunications (4.5%):
55,825 Century Telephone Enterprises, Inc................... 2,051,569
42,825 GTE Corp............................................. 1,991,363
32,050 Northern Telecom Ltd................................. 3,351,227
32,100 SBC Communications................................... 1,899,919
------------
9,294,078
------------
Total Common Stocks 204,575,647
------------
INVESTMENT COMPANY (2.1%):
4,269,214 The One Group Prime Money Market Fund, (Fiduciary
Shares)............................................ 4,269,214
------------
Total Investment Company 4,269,214
------------
Total (Cost--$125,420,032) (a) $208,844,861
============
</TABLE>
- --------
Percentages indicated are based on net assets of $208,149,206.

(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$4,655. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.. $84,748,254
Unrealized depreciation.. (1,328,080)
-----------
Net unrealized
appreciation............. $83,420,174
===========
</TABLE>
(b) Non income producing securities.

See notes to financial statements.

66
<PAGE> 67

PACIFIC CAPITAL FUNDS
U.S. TREASURY SECURITIES FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY NOTES (53.5%):
2,350,000 5.50%, 9/30/97......................................... $ 2,350,234
1,900,000 7.13%, 9/30/99......................................... 1,953,390
2,000,000 7.13%, 2/29/00......................................... 2,063,440
4,000,000 7.75%, 2/15/01......................................... 4,246,119
980,000 8.00%, 5/15/01......................................... 1,051,217
1,000,000 7.50%, 2/15/05......................................... 1,089,220
550,000 6.50%, 5/15/05......................................... 566,154
-----------
Total U.S. Treasury Notes 13,319,774
-----------
U.S. TREASURY BONDS (43.1%):
2,150,000 7.63%, 2/15/07........................................ $ 2,281,688
7,700,000 7.25%, 5/15/16........................................ 8,470,924
-----------
Total U.S. Treasury Bonds 10,752,612
-----------
INVESTMENT COMPANY (1.3%):
320,475 The One Group US Treasury Securities Money Market
Fund (Fiduciary Shares).............................. 320,475
-----------
Total Investment Company 320,475
-----------
Total (Cost--$22,918,222) (a) $24,392,861
===========
</TABLE>

- --------
Percentages indicated are based on net assets of $24,919,188.

(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$55,550. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation... $1,474,639
Unrealized depreciation... (55,550)
----------
Net unrealized
appreciation.............. $1,419,089
==========
</TABLE>

See notes to financial statements.

67
<PAGE> 68

PACIFIC CAPITAL FUNDS
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY NOTES (97.6%):
2,000,000 5.50%, 9/30/97......................................... $ 2,000,200
2,000,000 6.00%, 12/31/97........................................ 2,004,640
1,100,000 7.25%, 2/15/98......................................... 1,109,625
250,000 5.13%, 12/31/98........................................ 248,288
200,000 6.75%, 6/30/99......................................... 203,780
1,000,000 7.88%, 11/15/99........................................ 1,045,040
5,000,000 6.25%, 5/31/00......................................... 5,060,100
2,000,000 6.13%, 7/31/00......................................... 2,017,660
3,000,000 6.50%, 5/31/01......................................... 3,065,760
4,000,000 6.25%, 2/15/03......................................... 4,063,280
5,700,000 6.50%, 5/15/05......................................... 5,867,409
-----------
Total U.S. Treasury Notes 26,685,782
-----------
INVESTMENT COMPANY (1.0%):
282,857 The One Group US Treasury Securities Money Market Fund
(Fiduciary Shares).................................... $ 282,857
-----------
Total Investment Company 282,857
-----------
Total (Cost--$26,669,931) (a) $26,968,639
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $27,340,447.

(a)Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation........ $299,125
Unrealized depreciation........ (417)
--------
Net unrealized appreciation.... $298,708
========
</TABLE>

See notes to financial statements.

68
<PAGE> 69

PACIFIC CAPITAL FUNDS
GROWTH AND INCOME FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (97.0%):
Aerospace/Defense (1.1%):
23,000 Boeing Co........................................... $ 1,352,688
------------
Automotive (0.9%):
28,800 Ford Motor Co....................................... 1,177,200
------------
Automotive Parts (1.3%):
35,825 Lear Corp. (b)...................................... 1,715,122
------------
Banks (4.6%):
44,550 BankAmerica Corp.................................... 3,363,525
29,675 BankBoston.......................................... 2,520,520
------------
5,884,045
------------
Beverages (1.9%):
63,000 PepsiCo, Inc........................................ 2,413,688
------------
Chemicals (2.3%):
18,700 E.I. Du Pont De Nemours Co.......................... 1,251,731
50,225 Sigma-Aldrich....................................... 1,739,041
------------
2,990,772
------------
Computers & Peripherals (8.4%):
34,025 Cisco Systems (b)................................... 2,707,114
86,875 Compaq Computer Corp. (b)........................... 4,962,734
63,425 Sun Microsystems, Inc. (b).......................... 2,897,730
------------
10,567,578
------------
Containers--Metal, Glass, Paper, Plastic (0.9%):
26,325 Bemis, Inc.......................................... 1,209,305
------------
Electrical Equipment (5.4%):
65,600 General Electric Co................................. 4,604,300
29,450 SCI Systems, Inc. (b)............................... 2,339,434
------------
6,943,734
------------
Electronic & Electrical (1.0%):
20,875 Emerson Electric Co. ............................... 1,231,625
------------
Financial Services (6.6%):
50,425 Paine Webber Group, Inc............................. 2,017,000
21,000 Student Loan Marketing Assoc........................ 3,148,688
46,462 Washington Mutual................................... 3,211,685
------------
8,377,373
------------
Food Processing & Packaging (2.2%):
21,375 ConAgra, Inc. ...................................... 1,502,930
Food Processing & Packaging, continued:
44,325 Hormel Foods Corp................................... $ 1,252,181
------------
2,755,111
------------
Footwear (0.9%):
18,800 Nike, Inc........................................... 1,171,475
------------
Funeral Services (1.2%):
43,475 Service Corp. International......................... 1,478,150
------------
Heavy Machinery--Industrial, Farm,
Construction (1.3%):
24,150 Ingersoll-Rand Co. ................................. 1,643,709
------------
Household Products (1.0%):
29,775 Newell Co........................................... 1,248,689
------------
Insurance (5.2%):
21,112 American International Group, Inc................... 2,248,481
30,225 Travelers Property Casualty......................... 1,299,675
43,350 Travelers, Inc...................................... 3,118,491
------------
6,666,647
------------
Leisure--Recreation, Gaming (1.3%):
40,600 Carnival Corp. Cruise Lines......................... 1,710,275
------------
Medical Supplies (1.0%):
14,675 Medtronic, Inc. .................................... 1,280,394
------------
Metal & Mineral Production (0.5%):
27,950 Barrick Gold Corp................................... 637,609
------------
Oil & Gas Exploration, Production, &
Services (5.8%):
18,250 Amoco Corp. ........................................ 1,715,500
41,150 Exxon Corp.......................................... 2,643,887
23,950 Mobil Corp. ........................................ 1,832,175
47,950 Union Pacific Resources............................. 1,183,766
------------
7,375,328
------------
Oilfield Equipment & Services (2.3%):
26,350 Schlumberger Ltd.................................... 2,012,481
11,475 Transocean Offshore Inc............................. 937,364
------------
2,949,845
------------
Paint, Varnishes, Enamels (0.9%):
37,550 Sherwin Williams Co................................. 1,203,947
------------
</TABLE>

Continued

69
<PAGE> 70

PACIFIC CAPITAL FUNDS
GROWTH AND INCOME FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (8.6%):
25,200 American Home Products Corp......................... $ 2,077,425
37,450 Johnson & Johnson, Inc.............................. 2,333,603
35,650 Merck & Co. Inc..................................... 3,705,373
20,750 Pfizer, Inc......................................... 1,237,219
40,100 Pharmacia & Upjohn.................................. 1,513,775
------------
10,867,395
------------
Publishing (1.4%):
26,225 McGraw Hill, Inc.................................... 1,778,383
------------
Restaurants (1.7%):
90,625 Wendy's International............................... 2,214,648
------------
Retail (4.4%):
41,737 Dollar General Corp................................. 1,836,428
53,750 Wal-Mart Stores, Inc................................ 2,018,984
31,000 Walgreen Co......................................... 1,751,500
------------
5,606,912
------------
Semiconductors (1.1%):
15,950 Intel Corp.......................................... 1,464,409
------------
Software & Computer Services (7.4%):
33,975 Computer Associates
International, Inc................................. 2,312,423
24,325 Microsoft Corp. (b)................................. 3,441,988
68,425 Oracle Systems Corp. (b)............................ 3,724,886
------------
9,479,297
------------
Steel (0.7%):
14,375 Nucor Corp.......................................... $ 892,148
------------
Tobacco & Tobacco Products (3.9%):
109,775 Philip Morris Cos., Inc............................. 4,953,597
------------
Toys & Bicycles--Manufacturing (1.5%):
55,425 Mattel, Inc......................................... 1,926,019
------------
Transportation (1.1%):
51,650 Comair Holdings, Inc................................ 1,391,322
------------
Utilities--Electric (2.5%):
50,000 Illinova Corp....................................... 1,178,125
93,775 Southern Co......................................... 2,057,189
------------
3,235,314
------------
Utilities--Telecommunications (4.7%):
31,225 Century Telephone
Enterprises, Inc................................... 1,147,519
49,350 GTE Corp............................................ 2,294,775
42,050 SBC Communications.................................. 2,488,834
------------
5,931,128
------------
Total Common Stocks 123,724,881
------------
INVESTMENT COMPANY (2.9%):
3,688,308 The One Group Prime Money Market Fund, (Fiduciary
Shares)............................................ 3,688,308
------------
Total Investment Company 3,688,308
------------
Total (Cost--$90,175,740) (a) $127,413,189
============
</TABLE>
- --------
Percentages indicated are based on net assets of $127,547,357.

(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$52,014. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation..... $37,764,210
Unrealized depreciation..... (578,775)
-----------
Net unrealized appreciation. $37,185,435
===========
</TABLE>

(b)Non income producing securities.

See notes to financial statements.

70
<PAGE> 71

PACIFIC CAPITAL FUNDS
DIVERSIFIED FIXED INCOME FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (43.5%):
Automotive (0.8%):
1,000,000 Ford Motor Co., 7.25%,
10/1/08................ $ 1,050,000
------------
Banking (4.4%):
700,000 Interamerica Development
Bank, 8.50%, 3/15/11... 831,250
4,900,000 Suntrust Bank, 6.90%, 5,004,125
7/01/07................ ------------
5,835,375
------------
Banking--Foreign (11.6%):
5,000,000 Abbey National PLC,
6.69%, 10/17/05........ 5,037,500
3,425,000 Bayerische Landesbk--NY,
6.38%, 8/31/00......... 3,459,250
5,000,000 Dresdner Bank--NY,
6.63%, 9/15/05......... 5,031,250
2,000,000 Swiss Bank Corp.--NY,
6.75%, 7/15/05......... 2,030,000
------------
15,558,000
------------
Electric Utility (2.3%):
1,500,000 Duke Power Co., 8.00%,
11/1/99................ 1,558,125
1,500,000 National Rural Utility,
6.45%, 4/1/01.......... 1,513,125
------------
3,071,250
------------
Financial Services (14.0%):
5,000,000 General Electric Capital
Corp., 7.88%, 12/1/06.. 5,512,499
5,000,000 JPM Capital Corp.,
7.54%, 1/15/27,
Callable 1/15/07
@ 104.................. 5,056,250
2,000,000 Merrill Lynch & Co.
Inc., 7.00%, 1/15/07... 2,065,000
3,000,000 Merrill Lynch & Co.
Inc., 7.00%, 4/27/08... 3,093,750
3,000,000 Salomon Inc., 6.70%, 3,030,000
7/5/00................. ------------
18,757,499
------------
Health Care (3.6%):
4,300,000 Johnson & Johnson,
8.72%, 11/1/24......... 4,821,375
------------
Insurance (0.8%):
1,000,000 St. Paul Cos., Inc.,
7.29%, 8/28/07......... 1,042,500
------------
Oil & Gas--Exploration & Production
Services (1.1%):
1,050,000 Amoco Canada Petroleum Co.,
7.95%, 10/1/22......... $ 1,130,063
350,000 Societe Nationale
Elf Aquitaine,
8.00%, 10/15/01........ 373,625
------------
1,503,688
------------
Retail (1.2%):
1,400,000 Wal-Mart Stores, Inc.,
8.00%, 9/15/06......... 1,554,000
------------
Telecommunications (3.7%):
4,750,000 Bellsouth
Telecommunications, Inc.,
7.00%, 2/1/05.......... 4,940,000
------------
Total Corporate Bonds 58,133,687
------------
U.S. GOVERNMENT AGENCIES (14.0%):
Federal Home Loan Bank (4.8%):
2,500,000 6.30%, 4/29/99.......... 2,513,575
3,000,000 6.50%, 6/18/99.......... 3,000,630
935,000 6.70%, 7/22/02.......... 938,478
------------
6,452,683
------------
Federal National Mortgage
Association (9.2%):
2,500,000 5.49%, 8/12/97.......... 2,495,505
1,300,000 6.38%, 8/14/01.......... 1,319,045
7,000,000 7.69%, 9/13/06.......... 7,378,490
1,000,000 6.76%, 7/16/07.......... 1,017,320
------------
12,210,360
------------
Total U.S. Government Agencies 18,663,043
------------
U.S. TREASURY NOTES (28.0%):
3,250,000 5.63%, 8/31/97.......... 3,250,363
1,000,000 5.50%, 9/30/97.......... 1,000,100
8,000,000 6.75%, 4/30/00.......... 8,191,520
5,000,000 6.63%, 7/31/01.......... 5,134,550
3,500,000 6.25%, 2/15/03.......... 3,555,370
8,200,000 7.25%, 8/15/04.......... 8,795,730
7,300,000 6.50%, 5/15/05.......... 7,514,401
------------
Total U.S. Treasury Notes 37,442,034
------------
U.S. TREASURY BONDS (10.9%):
10,000,000 7.25%, 5/15/16.......... 11,001,200
3,650,000 6.25%, 8/15/23.......... 3,599,083
------------
Total U.S. Treasury Bonds 14,600,283
------------
</TABLE>

Continued

71
<PAGE> 72

PACIFIC CAPITAL FUNDS
DIVERSIFIED FIXED INCOME FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
PRIVATE PLACEMENT (0.8%):
1,000,000 MIC Financing Trust I, 8.38%,
2/1/27............................................... $ 1,058,750
------------
Total Private Placement 1,058,750
------------
INVESTMENT COMPANY (1.2%):
1,625,679 The One Group Prime Money Market Fund (Fiduciary
Shares).............................................. $ 1,625,679
------------
Total Investment Company 1,625,679
------------
Total (Cost--$127,758,477) (a) $131,523,476
============
</TABLE>
- --------
Percentages indicated are based on net assets of $133,686,079.

(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$39,129. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation..... $3,890,609
Unrealized depreciation..... (164,739)
----------
Net unrealized appreciation. $3,725,870
==========
</TABLE>
PLC--Public Limited Company

See notes to financial statements.

72
<PAGE> 73
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- ------------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (17.8%):
Hawaii (17.8%):
2,320,000 Hawaii Airports System Revenue, 7.50%, 7/1/20, Second
Series, FGIC, AMT................................... $ 2,557,800
320,000 Hawaii Airports System Revenue, 7.50%, 7/1/09, Second
Series, FGIC, AMT................................... 353,600
740,000 Hawaii Airports System Revenue, 7.00%, 7/1/10, FGIC,
AMT................................................. 822,325
510,000 Hawaii Airports System Revenue, 7.38%, 7/1/11, AMBAC,
AMT................................................. 561,000
10,585,000 Hawaii Airports System Revenue, 6.90%, 7/1/12, Second
Series, MBIA, AMT................................... 12,569,687
1,890,000 Hawaii Airports System Revenue, 7.00%, 7/1/18, Second
Series, MBIA, AMT................................... 2,081,363
640,000 Hawaii Airports System Revenue, 7.30%, 7/1/20, AMBAC,
AMT................................................. 702,400
1,500,000 Hawaii Airports System Revenue, 6.75%, 7/1/21, Second
Series, MBIA........................................ 1,629,375
3,205,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Citizens Utilities Co.
Project, 6.60%, 7/1/22, AMT......................... 3,417,331
7,000,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Hawaii Electric Co.,
6.60%, 1/1/25, Series A, MBIA, AMT.................. 7,726,250
1,475,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Hawaiian Electric Co. &
Subsidiaries, 6.55%, 12/1/22, MBIA, AMT............. 1,589,313
3,000,000 Hawaii Department of Budget & Finance, Special
Purpose Revenue, Hawaii Electric Co., 6.20%, 5/1/26,
Series A, MBIA, AMT................................. 3,198,750
1,825,000 Hawaii Harbor Capital Improvement Revenue, 6.10%,
7/1/07, FGIC, AMT................................... 2,000,656
Hawaii, continued:
1,605,000 Hawaii Harbor Capital Improvement Revenue, 7.25%,
7/1/10, MBIA, AMT................................... $ 1,759,481
2,245,000 Hawaii Harbor Capital Improvement Revenue, 7.00%,
7/1/17, MBIA, AMT................................... 2,438,631
1,350,000 Hawaii Harbor Capital Improvement Revenue, 6.50%,
7/1/19, FGIC, AMT................................... 1,458,000
3,205,000 Hawaii Harbor Capital Improvement Revenue, 6.38%,
7/1/24, FGIC, AMT................................... 3,449,381
3,205,000 Hawaii Housing Finance & Development Corp., Single
Family Mortgage Revenue, 6.00%, 7/1/26, Series A,
AMT................................................. 3,281,119
1,445,000 Honolulu City & County, 7.25%, 2/1/08, Series B,
Callable 2/1/00
@ 102 and 2/1/02 @ 100, FGIC,
AMT................................................. 1,564,213
------------
53,160,675
------------
Total Alternative Minimum Tax Paper 53,160,675
------------
MUNICIPAL BONDS (79.5%):
Arizona (0.9%):
1,000,000 Arizona Unified School District, Maricopa County, GO,
5.40%, 7/1/12....................................... 1,033,750
1,650,000 Phoenix Arizona Civic Improvement Corp., 5.25%,
7/1/16, Callable 7/1/07 @ 100, MBIA................. 1,654,125
------------
2,687,875
------------
California (7.5%):
1,500,000 Metropolitan Water District, 5.00%, 7/1/15, MBIA..... 1,494,375
3,000,000 Metropolitan Water District, Southern California,
5.75%, 7/1/21, MBIA................................. 3,120,000
2,565,000 Northern California Transmission, Oregon Transmission
Project, 7.00%, 5/1/13, Series A, MBIA.............. 3,145,331
</TABLE>

Continued

73
<PAGE> 74

PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
California, continued:
5,450,000 San Diego Public Facilities, 5.38%, 5/15/17, Callable
5/15/07 @ 101 and 5/15/09 @ 100..................... $ 5,531,750
1,745,000 San Francisco California C&C Airport Community,
International Airport Revenues, 5.63%, 5/1/21,
Callable 5/1/06 @ 101 and 5/1/07 @ 100, FGIC........ 1,790,806
1,735,000 San Francisco, Bay Area Rapid Transit, District Sales
Tax Revenue, 5.50%, 7/1/15, FGIC.................... 1,780,544
5,000,000 State Department Water, 6.00%, 12/1/20, Series P,
Callable 6/1/06 @ 101 and 6/1/07 @ 100.............. 5,356,250
------------
22,219,056
------------
Colorado (0.3%):
1,000,000 Adams & Arapaho County, 5.35%, 12/1/15, FGIC......... 1,028,750
------------
Connecticut (0.4%):
1,000,000 Connecticut State, Special Tax Obligation Revenue,
6.25%, 10/1/14, FGIC................................ 1,086,250
------------
Florida (5.3%):
2,000,000 Dade County, Water & Sewer, 5.50%, 10/1/15, FGIC..... 2,032,500
2,000,000 Florida State, Bond Finance Department, General
Services Environmental Revenue, 5.75%, 7/1/13,
AMBAC............................................... 2,115,000
3,500,000 Florida State, Turnpike Authority Revenue, Department
of Transportation, 5.50%, 7/1/17, FGIC.............. 3,600,624
2,000,000 Florida State, Turnpike Revenue, Department of
Transportation, 5.50%, 7/1/21, Series A, FGIC....... 2,050,000
2,875,000 Orange County, Public Tax Service, 6.00%, 10/1/24,
FGIC................................................ 3,083,438
Florida, continued:
2,565,000 Orlando, Utilities Community Water & Electric Revenue
Refunding, 6.75%, 10/1/17, Series D................. $ 3,126,094
------------
16,007,656
------------
Georgia (2.9%):
1,285,000 Georgia State, Municipal Electric Authority Revenue,
6.13%, 1/1/14, Series B, FGIC....................... 1,373,344
1,605,000 Metropolitan Atlanta, Rapid Transportation Authority,
Sales Tax Revenue, 6.25%, 7/1/11, Series P, AMBAC... 1,827,694
4,690,000 Municipal Electric Authority, Special Obligation
Third Crossover, 6.60%, 1/1/18, MBIA................ 5,557,650
------------
8,758,688
------------
Hawaii (37.7%):
2,000,000 Hawaii County, 5.50%, 5/1/08,
Series A, FGIC...................................... 2,145,000
1,375,000 Hawaii County, GO, 4.50%, 2/1/04, Series A, FGIC..... 1,383,594
1,305,000 Hawaii County, GO, 7.30%, 6/1/10, Series A, Pre-
refunded 6/1/00
@ 101, FGIC, (b).................................... 1,432,238
2,095,000 Hawaii County, GO, 5.10%, 2/1/13, Series A, FGIC..... 2,115,950
415,000 Hawaii County, GO, 5.60%, 5/1/13, Series A, FGIC..... 443,013
2,320,000 Hawaii County, GO, 5.20%, 2/1/15..................... 2,343,200
1,810,000 Hawaii County, GO, 5.00%, 2/1/10, Series A, FGIC..... 1,828,100
1,455,000 Hawaii Department Budget & Finance, Queens Health
System, 5.88%, 7/1/11............................... 1,540,481
1,745,000 Hawaii Department Budget & Finance, Queens Health
System, 6.05%, 7/01/16.............................. 1,858,425
2,535,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Hawaii Electric Co., 6.88%,
4/1/12, MBIA........................................ 2,596,727
</TABLE>

Continued

74
<PAGE> 75

PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Hawaii, continued:
2,820,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Hawaii Electric Light Co. Project,
7.20%, 12/1/14, MBIA.................................. $ 3,084,375
1,285,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Kaiser Permanente, 6.25%, 3/1/21,
Series A.............................................. 1,355,675
965,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Maui Electric Co. Project, 6.88%,
4/1/12, MBIA.......................................... 988,498
1,170,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System, 6.30%, 7/1/08,
Callable 7/1/03 @ 102, MBIA........................... 1,285,538
2,535,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System, 6.40%, 7/1/13,
Callable 7/1/03 @ 102, MBIA........................... 2,782,163
965,000 Hawaii Department Transportation, Special Facility
Revenue, 5.75%, 3/1/13................................ 996,363
965,000 Hawaii Harbor Capital Improvement Revenue, 6.20%,
7/1/08, MBIA.......................................... 1,045,819
4,525,000 Hawaii Housing Finance & Development Corp., 5.85%,
7/1/17................................................ 4,649,437
1,925,000 Hawaii Housing Finance & Development Corp., Federal
National Mortgage Assoc., 5.70%,7/1/13................ 1,989,969
4,185,000 Hawaii Housing Finance & Development Corp., Federal
National Mortgage Assoc., 7.00%, 7/1/31............... 4,441,330
1,580,000 Hawaii Housing Finance & Development Corp., Single
Family Mortgage Purchase Revenue, 6.90%, 7/1/16,
Series B.............................................. 1,676,775
Hawaii, continued:
2,340,000 Hawaii Housing Finance & Development Corp., University
of Hawaii Housing, 5.70%, 10/1/25, AMBAC............. $ 2,439,450
2,000,000 Hawaii State, 6.00%, 10/1/12, Series BZ, FGIC......... 2,237,500
2,000,000 Hawaii State, 6.50%, 12/1/13, Series CM, FGIC......... 2,350,000
3,000,000 Hawaii State, 5.50%, 3/1/16, Series CN, FGIC.......... 3,082,500
5,000,000 Hawaii, GO, 6.05%, 1/1/08, FGIC....................... 5,531,249
640,000 Hawaii, GO, 5.50%, 6/1/08, FGIC....................... 671,200
1,345,000 Hawaii, GO, 6.38%, 2/1/09,
Series BT, Pre-refunded 2/1/01
@ 101, (b)........................................... 1,455,963
640,000 Hawaii, GO, 5.50%, 6/1/09, FGIC....................... 668,000
1,035,000 Hawaii, GO, 5.00%, 7/1/09, FGIC....................... 1,049,231
4,490,000 Hawaii, GO, 6.13%, 2/1/10,
Series BT, Pre-refunded 2/1/01
@ 101, (b)........................................... 4,821,137
640,000 Hawaii, GO, 5.50%, 6/1/10, Series CE, FGIC............ 664,800
4,000,000 Hawaii, GO, 5.25%, 9/1/10, Series CK, FGIC............ 4,099,999
3,145,000 Hawaii, GO, 5.25%, 6/1/13, FGIC....................... 3,200,038
1,000,000 Hawaii, GO, 5.25%, 3/1/16, Series CL, FGIC............ 1,010,000
1,480,000 Honolulu City & County, 7.15%, 6/1/10, Series C,
Prefunded 6/1/00 @ 101, (b).......................... 1,618,750
2,565,000 Honolulu City & County, 7.35%, 7/1/06, Series A, FGIC. 3,090,825
3,000,000 Honolulu City & County, 6.00%, 1/1/11, Series A, FGIC. 3,344,999
3,000,000 Honolulu City & County, 5.75%, 4/1/11, Series A, FGIC. 3,243,750
1,605,000 Honolulu City & County, 5.75%, 4/1/12, FGIC........... 1,759,481
2,890,000 Honolulu City & County, 5.75%, 4/1/13, Series A, FGIC. 3,128,425
2,000,000 Honolulu City & County, 5.63%, 9/1/13, Series A,
Callable 9/1/06 @ 102 and 9/1/08 @ 100,.............. 2,100,000
</TABLE>

Continued

75
<PAGE> 76

PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Hawaii, continued:
1,280,000 Honolulu City & County Refunding & Improvement, 5.50%,
10/1/11, Series B, FGIC.............................. $ 1,360,000
640,000 Honolulu City & County Refunding & Improvement, 5.25%,
10/1/12, Series B, FGIC.............................. 664,800
1,055,000 Honolulu City & County Water, 6.00%, 12/1/10, FGIC.... 1,180,281
1,595,000 Honolulu City & County Water, 6.00%, 12/1/11, FGIC.... 1,786,400
640,000 Honolulu City & County Water, 6.00%, 12/1/14, FGIC.... 715,200
1,380,000 Honolulu City & County, GO, 5.00%, 11/1/12, Series A,
MBIA................................................. 1,386,900
695,000 Kauai County, 5.55%, 8/1/04........................... 743,650
740,000 Kauai County, 5.65%, 8/1/05........................... 800,125
780,000 Kauai County, 5.75%, 8/1/06........................... 852,150
925,000 Kauai County, 5.90%, 8/1/09, Series C, AMBAC.......... 1,023,281
1,005,000 Maui County, 5.10%, 9/1/11, Series A, Callable 9/1/07
@ 101................................................ 1,020,075
645,000 Maui County Refunding, 5.25%, 9/1/06.................. 674,025
890,000 Maui County Refunding, 5.13%, 12/15/10................ 904,463
355,000 Maui County Water, 6.10%, 12/1/02, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 386,506
375,000 Maui County Water, 6.20%, 12/1/03, Series A, FGIC..... 409,688
400,000 Maui County Water, 6.30%, 12/1/04, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 438,500
425,000 Maui County Water, 6.40%, 12/1/05, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 468,031
390,000 Maui County Water, 6.50%, 12/1/06, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 430,950
380,000 Maui County Water, 6.60%, 12/1/07, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 421,325
Hawaii, continued:
520,000 Maui County Water, 6.65%, 12/1/08, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... $ 577,200
455,000 Maui County Water, 6.65%, 12/1/09, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 505,050
595,000 Maui County Water, 6.70%, 12/1/10, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 661,938
535,000 Maui County Water, 6.70%, 12/1/11, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 595,188
1,020,000 Maui County, GO, 5.90%, 6/1/14....................... 1,085,025
------------
112,640,718
------------
Kansas (1.7%):
2,565,000 Burlington Pollution Control Refunding, Kansas Gas &
Electric Co. Project, 7.00%, 6/1/31................. 2,843,944
2,000,000 Kansas City, Utilities System, Revenue Refunding &
Improvement, 6.38%, 9/1/23.......................... 2,200,000
------------
5,043,944
------------
Maine (0.7%):
1,925,000 Maine State Turnpike Authority, Turnpike Revenue,
6.00%, 7/1/14....................................... 2,069,375
------------
Massachusetts (1.6%):
3,790,000 Commonwealth of Massachusetts, 5.50%, 7/1/15, Series
B................................................... 3,889,488
1,000,000 Massachusetts State Water Pollution Abatement Trust,
5.70%, 2/1/13....................................... 1,047,500
------------
4,936,988
------------
Michigan (2.4%):
4,000,000 Michigan Environmental Protection Program, GO, 5.40%,
11/1/19............................................. 4,074,999
1,545,000 Michigan Strategic Obligations Revenue, 6.95%,
5/1/11.............................................. 1,875,244
1,250,000 Saline Area Schools, GO, 5.50%, 5/1/15, FGIC......... 1,289,063
------------
7,239,306
------------
</TABLE>

Continued

76
<PAGE> 77
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Minnesota (0.8%):
2,000,000 North St. Paul, Maplewood, Independent School
District, No. 622, 6.88%, 2/1/15, Series A,
Prefunded 2/1/05 @ 100.............................. $ 2,327,500
------------
New Jersey (1.3%):
2,000,000 New Jersey Wastewater Treatment Trust, 6.38%, 4/1/14,
Series B............................................ 2,212,500
1,500,000 South Brunswick Township Board of Education, 6.40%,
8/1/14, FGIC........................................ 1,700,625
------------
3,913,125
------------
New Mexico (2.0%):
2,000,000 Rio Rancho Water & Waste Water Systems Revenue,
5.90%, 5/15/15, Series A, FSA....................... 2,095,000
2,085,000 Santa Fe Revenue, 6.25%, 6/1/15, Prefunded 6/1/04 @
100................................................. 2,316,956
1,625,000 Sante Fe, New Mexico, Gross Receipts Tax Revenue,
5.63%, 6/1/16....................................... 1,677,813
------------
6,089,769
------------
New York (0.7%):
2,000,000 Triborough Bridge & Tunnel Authority, New York
Revenues, General Purpose, 5.30%, 1/1/17............ 2,012,500
------------
North Carolina (1.2%):
3,085,000 Easton Municipal Power Agency, 6.50%, 1/1/18, (b).... 3,644,156
------------
Ohio (1.5%):
2,320,000 Cleveland Package Facilities Revenue, 5.50%, 9/15/16. 2,372,200
1,120,000 Cleveland Waterworks Revenue, 6.25%, 1/1/16, MBIA.... 1,191,400
1,000,000 Ohio Water Development Authority, Pollution Control,
5.50%, 12/1/15, MBIA................................ 1,026,250
------------
4,589,850
------------
Oregon (0.6l%):
1,605,000 Umatilla County, School District Number 016R,
Pendleton, 6.00%, 7/1/14, AMBAC..................... $ 1,727,381
------------
Pennsylvania (1.1%):
3,150,000 Southeastern Pennsylvania Transportation Authority,
6.00%, 3/1/15, Series A, Callable 3/1/05 @ 101,
FGIC................................................ 3,350,813
------------
South Carolina (0.8%):
1,960,000 Piedmont Municipal Power Agency, South Carolina
Electric Refunding, 6.50%, 1/1/14, Series A, FGIC... 2,288,300
------------
Tennessee (2.6%):
1,000,000 Johnson City, School Sales Tax, 6.70%, 5/1/21........ 1,161,250
6,300,000 Shelby County Refunding, 5.63%, 4/1/15, Series A..... 6,544,125
------------
7,705,375
------------
Texas (1.7%):
1,520,000 Harris County, Certificates of Obligation, 6.00%,
10/1/15............................................. 1,634,000
2,000,000 Texas State Refunding, Public Finance Authority,
5.95%, 10/1/15, Series A............................ 2,115,000
1,280,000 Texas State, Public Financial Authority, 6.00%,
10/1/12,
Series A............................................ 1,366,400
------------
5,115,400
------------
Virginia (3.8%):
3,500,000 Commonwealth of Virginia Public School Authority,
Special Obligation, Chesapeake School, 5.63%,
6/1/15.............................................. 3,644,375
2,995,000 Fairfax County Public Improvement, 5.50%, 6/1/14,
Series A............................................ 3,096,081
2,750,000 Norfolk Water Revenue, 5.75%, 11/1/13, MBIA.......... 2,894,375
</TABLE>

Continued

77
<PAGE> 78

PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Virginia, continued:
1,750,000 Richmond Refunding, 5.20%, 1/15/14................... $ 1,776,250
------------
11,411,081
------------
Total Municipal Bonds 237,893,856
------------
MUNICIPAL VARIABLE RATE DEMAND OBLIGATIONS (1.6%):
Indiana (0.6%):
1,700,000 Purdue University, 3.50%*, 7/1/11, Series E.......... 1,700,000
------------
New York (0.9%):
1,000,000 New York City Municipal Water Fin. Auth., Water &
Sewer Sys Revenues, 3.60%*, 6/15/25................. 1,000,000
1,800,000 New York, New York, 3.60%*, 10/1/23................... $ 1,800,000
------------
2,800,000
------------
Washington (0.1%):
400,000 Washington State Health Care, 3.70%*, 1/1/18.......... 400,000
------------
Total Municipal Variable Rate Demand Obligations 4,900,000
------------
INVESTMENT COMPANY (0.1%):
250,819 Nuveen Tax Free Money Market Fund..................... 250,819
------------
Total Investment Company 250,819
------------
Total (Cost--$273,111,775) (a) $296,205,350
============
</TABLE>
- --------
Percentages indicated are based on net assets of $299,309,296.

* Variable rate security. Rate presented represents rate in effect at July 31,
1997. Maturity reflects final maturity date.

(a)Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.. $23,106,595
Unrealized depreciation.. (13,020)
-----------
Net unrealized
appreciation............. $23,093,575
===========
</TABLE>

(b) Collateralized by various U.S. Government Securities.

AMBAC--AMBAC Indemnity Corporation
AMT--Alternative Minimum Tax Paper
FGIC--Insured by Financial Guaranty Insurance Corporation
FSA--Insured by Financial Security Assurance
GO--General Obligation
MBIA--Insured by Municipal Bond Insurance Association

See notes to financial statements.

78
<PAGE> 79
PACIFIC CAPITAL FUNDS
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (15.8%):
Hawaii (10.3%):
2,000,000 Hawaii State Airports System, Revenue, 5.45%, 7/1/00,
Second Series, MBIA................................. $ 2,074,999
1,270,000 Hawaii State Airports Systems Revenue, 5.60%, 7/1/01. 1,335,088
500,000 Hawaii State Housing Fin & Dev Single Family, 4.55%,
7/1/02, Series A, AMT............................... 500,625
-----------
3,910,712
-----------
Illinois (1.3%):
500,000 Chicago Illinois O'Hare International Airport, 4.90%,
1/1/01.............................................. 508,750
-----------
Texas (4.2%):
550,000 Brazos, Higher Education Authority, 5.60%, 6/1/99,
Series A-2.......................................... 563,063
1,000,000 El Paso Texas Apartment Revenue, 5.00%, 8/15/01...... 1,025,000
-----------
1,588,063
-----------
Total Alternative Minimum Tax Paper 6,007,525
-----------
MUNICIPAL BONDS (82.5%):
Alaska (2.7%):
1,000,000 Alaska State Housing Finance Corp., 4.60%, 6/1/00.... 1,013,750
-----------
Arizona (3.6%):
750,000 Arizona State Transportation Board, 5.50%, 7/1/00.... 780,938
600,000 Salt River Project, Arizona Agricultural, 4.45%,
1/1/00,
Series B............................................ 606,000
-----------
1,386,938
-----------
Hawaii (45.4%):
2,500,000 Hawaii State Airport System Revenue, 5.55%, 7/1/00,
MBIA................................................ 2,612,499
120,000 Hawaii State Community Development Authority,
District #1, Special Tax Assessment, 4.45%, 7/1/98.. 120,641
165,000 Hawaii State Community Development Authority,
District #2, Special Tax Assessment, 4.45%, 7/1/98.. $ 165,881
1,000,000 Hawaii State Housing Fin & Dev Single Family, 4.80%,
7/1/07, Series B.................................... 1,002,500
3,000,000 Hawaii State, GO, 5.50%, 1/1/00...................... 3,101,249
2,500,000 Hawaii State, GO, 4.60%, 2/1/00, Series Cd........... 2,534,374
1,500,000 Hawaii State, GO, 5.00%, 9/1/00, Series Ck........... 1,541,250
1,200,000 Hawaii State, GO, 4.50%, 3/1/01, Series Cl........... 1,215,000
850,000 Honolulu, City & County, 4.70%, 9/1/01, Series A..... 868,063
800,000 Honolulu, City & County, 5.25%, 9/1/02, Series A,
FGIC................................................ 837,000
700,000 Honolulu, City & County GO, 5.10%, 1/1/00, Series A,
FGIC................................................ 716,625
750,000 Honolulu, City & County GO, 5.10%, 6/1/00, Series B.. 771,563
375,000 Honolulu, City & County Improvement District, 5.85%,
10/15/97............................................ 376,328
370,000 Honolulu, City & County Improvement District, 6.05%,
10/15/98............................................ 378,788
370,000 Honolulu, City & County Improvement District, 6.20%,
10/15/99............................................ 383,875
620,000 Maui County, GO, 5.35%, 6/1/00....................... 641,700
-----------
17,267,336
-----------
Illinois (4.0%):
1,500,000 Metropolitan Pier & Exposition, 4.60%, 12/15/00...... 1,522,500
-----------
Maryland (2.7%):
1,000,000 Maryland State and Local Facilities, GO, 5.00%,
3/1/03.............................................. 1,040,000
-----------
</TABLE>

Continued

79
<PAGE> 80

PACIFIC CAPITAL FUNDS
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Massachusetts (3.4%):
1,265,000 Massachusetts State Construction, 5.13%, 11/1/00,
Series D............................................. $ 1,302,950
-----------
Michigan (2.7%):
1,000,000 Ypsilanti Michigan School District Ref., GO, 4.60%,
5/1/01, FGIC......................................... 1,013,750
-----------
Minnesota (5.9%):
1,500,000 Minnesota State Revenue, 5.00%, 6/30/01, Series A..... 1,546,875
700,000 Minnesota State, GO, 5.00%, 8/1/00.................... 721,000
-----------
2,267,875
-----------
Missouri (2.8%):
1,000,000 Kansas City Water Revenue, 5.50%, 12/1/02............. 1,063,750
-----------
Rhode Island (3.3%):
1,250,000 Rhode Island Housing & Mortgage Financial Corporation,
5.00%, 7/1/00........................................ 1,275,000
-----------
Texas (1.3%):
500,000 Tarrant County Texas Health Facilities Development,
4.75%, 9/1/00, AMBAC................................. 508,750
-----------
Virginia (2.0%):
750,000 Virginia State Public School Authority, 4.50%, 1/1/01. $ 758,438
-----------
Wisconsin (2.7%):
1,000,000 Milwaukee, GO, 5.00%, 2/1/01.......................... 1,032,500
-----------
Total Municipal Bonds 31,453,537
-----------
MUNICIPAL VARIABLE RATE DEMAND
OBLIGATIONS (3.9%):
Washington (3.9%):
1,500,000 Washington State Health Care Facility Hutchinson,
3.70%*, 1/1/18....................................... 1,500,000
-----------
Total Municipal Variable Rate
Demand Obligations 1,500,000
-----------
INVESTMENT COMPANY (0.8%):
318,106 Nuveen Tax Free Money
Market Fund.......................................... 318,106
-----------
Total Investment Company 318,106
-----------
Total (Cost--$38,681,464) (a) $39,279,168
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $38,134,362.

* Variable rate security. Rate presented represents rate in effect at July 31,
1997. Maturity reflects final maturity date.

(a) Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation..... $597,704
Unrealized depreciation..... 0
--------
Net unrealized appreciation. $597,704
========
</TABLE>

AMBAC--AMBAC Indemnity Corporation
AMT--Alternative Minimum Tax Paper
FGIC--Insured by Financial Guaranty Insurance Corporation
GO--General Obligation
MBIA--Insured by Municipal Bond Insurance Association

See notes to financial statements.

80
<PAGE> 81

PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND

SCHEDULE OF INVESTMENTS
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (81.6%):
Hong Kong (42.3%):
Chemicals (0.2%):
200,000 Ngai Hing Hong Co. Ltd................................. $ 53,729
-----------
Construction (5.7%):
70,000 Cheung Kong Infrastructure............................. 242,298
170,600 New World Infrastructure Ltd. (b)...................... 542,039
1,500,000 Wai Kee Holdings Ltd................................... 450,434
-----------
1,234,771
-----------
Containers & Packaging (1.4%):
136,000 Cosco Pacific Limited.................................. 304,758
-----------
Diversified--Conglomerates, Holding Companies (10.1%):
62,000 Citic Pacific Limited.................................. 393,179
78,000 Hutchison Whampoa Ltd.................................. 760,604
111,000 Swire Pacific Ltd., Class A............................ 1,053,724
-----------
2,207,507
-----------
Electrical & Electronic (1.0%):
590,000 Elec & Eltek International Holdings Ltd. .............. 213,367
-----------
Financial Services (1.6%):
53,200 Dah Sing Financial Group............................... 339,434
-----------
Forest Products (0.5%):
514,000 Ta Fu International Ltd................................ 100,908
-----------
Real Estate (14.0%):
37,000 Cheung Kong Holdings Ltd............................... 410,977
438,000 China Resources Beijing Land........................... 347,909
186,000 China Resources Enterprise Ltd. ....................... 929,696
794,000 Fairyoung Holdings Ltd. (b)............................ 328,161
289,000 Lai Sun Development Co. Ltd............................ 324,739
60,000 New World Development Co. Ltd.......................... 432,029
120,000 Wheelock & Co. Ltd..................................... 289,828
-----------
3,063,339
-----------
Telecommunications (2.2%):
161,500 Asia Satellite Telecom Holdings, Ltd. ................. 484,967
-----------
Textile/Apparel (0.6%):
865,000 Chaifa Holdings Ltd.................................... 139,651
-----------
Transportation--Air (0.7%):
246,000 China Southern Airlines Co............................. 151,714
-----------
Utilities--Electric (4.3%):
42,000 China Light & Power Co. Ltd............................ $ 240,851
480,000 Guangdong Electric Power............................... 359,572
85,500 Hong Kong Electric Holdings Ltd........................ 348,956
-----------
949,379
-----------
9,243,524
-----------
India (2.8%):
Engineering (2.8%):
35,000 Larsen & Toubro--GDR................................... 612,500
-----------
Indonesia (6.5%):
Automotive (1.3%):
73,000 PT Astra International................................. 279,159
-----------
Chemicals (0.2%):
36,000 PT Lautan Luas (b)..................................... 49,904
-----------
Fisheries (2.0%):
263,000 PT Daya Guna Samudera.................................. 434,980
-----------
Food Products (0.7%):
165,100 PT Fiskar Agung Perkasa................................ 156,261
-----------
Hotels & Lodging (1.5%):
490,000 PT Sona Topas Tourism.................................. 318,547
-----------
Utilities--Telecommunications (0.8%):
120,000 PT Telekomunikasi...................................... 183,556
-----------
1,422,407
-----------
Korea (4.7%):
Machinery & Equipment (1.7%):
42,000 Daewoo Heavy Industries................................ 364,314
-----------
Steel (1.3%):
3,360 Pohang Iron & Steel Co................................. 287,959
-----------
Utilities--Electric (1.7%):
12,500 Korea Electric Power Corp.............................. 365,169
-----------
1,017,442
-----------
Malaysia (7.0%):
Construction (0.8%):
100,000 Metacorp Berhad........................................ 173,714
-----------
</TABLE>

Continued

81
<PAGE> 82

PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Malaysia, continued:
Diversified--Conglomerates, Holding Companies (1.9%):
130,000 Multi-Purpose Holdings Berhad.......................... $ 161,728
200,000 Renong Berhad.......................................... 256,398
-----------
418,126
-----------
Engineering (1.1%):
120,000 IJM Corp Berhad........................................ 232,124
-----------
Financial Services (1.0%):
170,000 Public Finance Berhad.................................. 224,387
-----------
Real Estate (0.8%):
175,000 Hong Leong Properties Berhad........................... 179,214
-----------
Telecommunications (0.8%):
135,000 Time Engineering Berhad................................ 171,021
-----------
Transportation (0.6%):
112,000 Johor Port Berhad...................................... 125,742
-----------
1,524,328
-----------
Philippines (1.6%):
Real Estate (1.6%):
1,332,000 Belle Corporation (b).................................. 298,551
325,000 Fil - Estate Land, Inc. (b)............................ 58,276
-----------
356,827
-----------
Singapore (5.3%):
Beverages (1.2%):
40,000 Fraser & Neave Ltd. ................................... 271,920
-----------
Diversified--Conglomerates, Holding Companies (0.6%):
32,500 Keppel Corporation..................................... 139,189
-----------
Electrical Equipment (2.1%):
60,000 Elec & Eltek International Co. Ltd..................... 450,000
-----------
Hotels & Lodging (1.2%):
150,000 Hotel Properties Ltd................................... 257,984
-----------
Real Estate (0.2%):
33,600 Orchard Parade Holdings Ltd............................ 47,281
-----------
1,166,374
-----------
Taiwan (7.2%):
Banks (1.0%):
148,350 Chinatrust Commercial Bank............................. $ 223,394
-----------
Computers & Peripherals (2.9%):
15,000 Asustek Computer Inc. (b).............................. 311,628
36,000 Inventec Co. Ltd.(b)................................... 294,897
-----------
606,525
-----------
Electrical & Electronic (2.5%):
26,400 Compal Electronics (b)................................. 126,534
96,000 Siliconware Precision Industries
Co. (b)............................................... 426,659
-----------
553,193
-----------
Real Estate (0.8%):
82,500 Kindom Construction Co., Ltd. (b)...................... 181,173
-----------
1,564,285
-----------
Thailand (1.2%):
Oil & Gas Exploration, Production, & Services (1.2%):
17,500 PTT Exploration & Production PLC....................... 258,039
-----------
United States (3.0%):
Computers & Peripherals (2.4%):
8,450 Lite-On Technology Corp. GDR (b)....................... 252,951
10,000 Synnex Technology International Corp.--GDR (b)......... 289,500
-----------
542,451
-----------
Construction & Housing (0.6%):
14,938 Dong-Ah Construction Industrial Co. EDR................ 120,624
-----------
663,075
-----------
Total Common Stocks 17,828,801
-----------
WARRANTS (0.2%):
Hong Kong (0.2%):
Construction (0.2%):
225,000 Wai Kee Holdings Ltd., 6/30/00......................... 36,616
-----------
Total Warrants 36,616
-----------
</TABLE>

Continued

82
<PAGE> 83

PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND

SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
INVESTMENT COMPANY (16.3%):
United States (16.3%):
3,560,847 Union Bank of California Money Market Fund............. $ 3,560,847
-----------
Total Investment Company 3,560,847
-----------
Total (Cost--$19,750,749) (a) $21,426,264
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $21,834,599.

Forward Currency Contracts:

<TABLE>
<CAPTION>
DELIVERY CONTRACT CONTRACT VALUE
DATE PRICE (U.S. DOLLARS) DEPRECIATION
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Currency Purchased:
Hong Kong Dollar.............. 8/4/97 $ 7.74 $586,932 $(219)
Currency Sold:
Indonesia Rupee............... 8/4/97 $2,620.00 $278,408 $(425)
</TABLE>

(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.... $ 3,227,362
Unrealized depreciation.... (1,551,847)
-----------
Net unrealized
appreciation............... $ 1,675,515
===========
</TABLE>

(b) Non income producing securities.

EDR--European Depository Receipt
GDR--Global Depository Receipt
PLC--Public Limited Company

See notes to financial statements.

83
<PAGE> 84

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997

1. ORGANIZATION

Pacific Capital Funds (the "Trust") was organized on October 30, 1992, and
is registered under the Investment Company Act of 1940, as amended, ("the
1940 Act"), as a diversified, open-end management investment company
established as a Massachusetts business trust. The Trust currently consists
of the following investment portfolios (individually, a "Fund" and
collectively, the "Funds"): Growth Stock Fund, U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income
Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free
Short Intermediate Securities Fund, and New Asia Growth Fund. The Trust is
authorized to issue an unlimited number of shares without par value in two
classes of shares for each Fund: Retail Class and Institutional Class. The
Institutional Class commenced operations October 14, 1994 when the Trust
identified those Institutional Shareholders that were part of the Retail
Class (as of October 13, 1994) and transferred the Shareholders into the
Institutional Class. Retail Class Shares are subject to initial sales
charges, imposed at the time of purchase, in accordance with the Funds'
prospectuses. Each class of shares for each Fund has identical rights and
privileges except with respect to distribution (12b-1) fees paid by Retail
Class Shares, voting rights on matters affecting a single class of shares
and the exchange privileges of each class of shares.

The Funds' investment objectives are as follows: Growth Stock Fund seeks
long-term capital appreciation; U.S. Treasury Securities Fund and Short
Intermediate U.S. Treasury Securities Fund seek a high level of current
income consistent with prudent risk of capital. Growth and Income Fund seeks
primarily current income and secondarily capital appreciation. Diversified
Fixed Income Fund seeks a high level of current income. Tax-Free Securities
Fund and Tax-Free Short Intermediate Securities Fund seek a high level of
current income exempt from federal and Hawaii income taxes. New Asia Growth
Fund seeks long-term growth of capital.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.

SECURITIES VALUATION

Investments of the Funds for which the primary market is a national
securities exchange or the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ") are valued at last
reported sale price on the day of valuation. In the absence of any sale of
such securities on the valuation date, the valuations are based on the mean
of the latest quoted bid and asked prices. Securities, including thinly
traded, unlisted, and restricted securities, for which market quotations are
not readily available, are valued at fair market value by the investment
adviser under the supervision of the Funds' Board of Trustees. Investments
in investment companies are valued at their respective net asset values as
reported by such companies. Money market instruments and other debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Investments in foreign securities, currency
holdings and other assets and liabilities of New Asia Growth Fund are valued
based on quotations from the primary market in which they are traded and
translated from the local currency into U.S. dollars using current exchange
rates. The differences between the cost and market values of securities are
reflected as either unrealized appreciation or depreciation.

Continued

84
<PAGE> 85

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

SECURITIES TRANSACTIONS AND RELATED INCOME

Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium
or accretion of discount. Dividend income is recorded on the ex-dividend
date and is reduced by applicable foreign taxes withheld. Gains or losses
realized from sales of securities are determined by comparing the identified
cost of the security lot sold with the net sales proceeds.

FOREIGN CURRENCY TRANSLATION

The New Asia Growth Fund isolates that portion of the results of operations
resulting from changes in currency exchange rates from the fluctuation
arising from changes in market prices of securities held.

Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate on the dates of the
transactions. Reported net realized foreign exchange gains or losses arise
from sales and maturities of portfolio securities, sales of foreign
currencies, currency exchange fluctuations between the trade and settlement
dates of securities transactions, and the difference between the amounts of
assets and liabilities recorded and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign currency
appreciation or depreciation arises from changes in the value of assets and
liabilities, including investments in securities, resulting from changes in
currency exchange rates.

RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES

Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers.
Such risks include future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
and restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political
or social instability or diplomatic developments which could adversely
affect investments in those countries.

Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant national
interests. These factors may limit the investment opportunities available in
the New Asia Growth Fund and result in a lack of liquidity and a high price
volatility with respect to securities of issuers from developing countries.

Withholding taxes on foreign dividends have been provided for in accordance
with the New Asia Growth Fund's understanding of applicable countries' tax
rules and rates.

FORWARD CURRENCY EXCHANGE CONTRACTS

The New Asia Growth Fund may from time to time enter into foreign currency
exchange transactions to convert to and from different foreign currencies.
The Fund may enter into currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or to sell foreign
currencies. A forward foreign currency contract is an obligation by the Fund
to purchase or to sell a specific currency at a future date at a price set
at the time of the contract. The Fund may use forward foreign currency
exchange contracts in order to protect against uncertainty in fluctuations
of future foreign exchange rates. The use of such forward

Continued

85
<PAGE> 86

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

contracts is limited to hedging against movements in the value of foreign
currencies relative to the U.S. dollar in connection with specific portfolio
transactions or with respect to portfolio positions. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any appreciation or depreciation is recorded for
financial statement purposes as unrealized until the contract settlement
date, at which time the Fund records realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The Fund could be exposed to risk if a
counterparty is unable to meet the terms of a forward foreign exchange
currency contract or if the value of the foreign currency changes
unfavorably.

WHEN-ISSUED AND FORWARD COMMITMENTS

The Funds may purchase securities on a "when-issued" basis and may also
purchase or sell securities on a forward commitment. The Funds record when-
issued securities on the trade date and maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. The value of securities underlying when-issued or
forward commitments to purchase securities, and any subsequent fluctuation
in their value, is taken into account when determining the net asset value
of the Funds commencing with the date the Funds agree to purchase the
securities. The Funds do not accrue interest or dividends on when-issued
securities until the underlying securities are received.

REPURCHASE AGREEMENTS

The Funds may acquire securities from member banks of the Federal Deposit
Insurance Corporation and from registered broker-dealers which Hawaiian
Trust Company, Limited ("Hawaiian Trust") deems creditworthy under
guidelines approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price ("repurchase agreement"). The repurchase price generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-
term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller, under a repurchase agreement, is required
to maintain the value of collateral held pursuant to the agreement at not
less than 102% of the repurchase price (including accrued interest).
Securities subject to repurchase agreements will be held by the Trust's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a
Fund under the 1940 Act.

DIVIDENDS TO SHAREHOLDERS

Dividends from net investment income are declared daily and paid monthly for
the U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury
Securities Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund and
Tax-Free Short Intermediate Securities Fund. Dividends from net investment
income are declared and paid monthly for the Growth Stock Fund and Growth
and Income Fund. Dividends from net investment income are declared and paid
quarterly for the New Asia Growth Fund. Distributable net realized capital
gains, if any, are declared and distributed annually.

Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments of foreign currency transactions and deferrals
of certain losses. Permanent book and tax basis differences are reflected in
the components of net assets.

Continued

86
<PAGE> 87

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

FEDERAL INCOME TAXES

Each Fund intends to continue to qualify as a regulated investment company
by complying with the provisions available to certain investment companies
as defined in applicable sections of the Internal Revenue Code, and to make
distributions of net investment income and net realized capital gains
sufficient to relieve it from all, or substantially all, federal income
taxes.

ORGANIZATION COSTS

Costs incurred by the Trust in connection with organization, registration
and the initial public offering of shares have been deferred and are
amortized using the straight-line method over a period of two years from the
commencement of the public offering of shares of each Fund.

CONCENTRATION OF CREDIT RISK

The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund have a majority of their investments in the securities of issuers in
Hawaii. Such concentration may subject the Fund to the effects of economic
changes occurring within that State.

OTHER

Expenses that are directly related to one Fund are charged directly to that
Fund. Other operating expenses for the Funds or the Trust are prorated to
the Funds on the basis of relative net assets or other appropriate basis.

3. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding short-term securities) for the
year ended July 31, 1997 are as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth Stock Fund.................................... $ 58,249,346 $ 92,090,700
U.S. Treasury Securities Fund........................ 10,008,609 10,750,239
Short Intermediate U.S. Treasury Securities Fund..... 13,308,723 11,193,471
Growth and Income Fund............................... 81,708,653 70,234,365
Diversified Fixed Income Fund........................ 110,382,175 147,784,788
Tax-Free Securities Fund............................. 31,839,329 35,193,262
Tax-Free Short Intermediate Securities Fund.......... 11,321,459 12,977,684
New Asia Growth Fund................................. 24,575,698 19,365,912
</TABLE>

4. RELATED PARTY TRANSACTIONS

Investment advisory services are provided to the Trust by Hawaiian Trust
(the "Adviser"). Under the terms of the investment advisory agreement with
the Trust, the Adviser is entitled to receive fees based on a percentage of
the average net assets of the Fund.

Continued

87
<PAGE> 88

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Services") are subsidiaries of The BISYS Group, Inc. BISYS, with whom
certain officers and a trustee of the Trust are affiliated, serves the Trust
as principal underwriter and administrator. Such officers and trustee are
not paid any fees directly by the Funds for serving as officers and trustee
of the Trust. Under the terms of the management and administration
agreement, BISYS' fees are computed at an annual rate of 0.20% of the
average daily net assets of each Fund.

BISYS also serves as the Trust's distributor and receives fees for providing
distribution services in accordance with a Distribution Agreement (the
"Agreement") pursuant to Rule 12b-1 under the 1940 Act. Under the Agreement,
Retail Class Shares pay BISYS a fee not to exceed, on an annual basis, 0.75%
of the average daily net assets attributable to the Retail Class of shares
of each Fund for payments BISYS makes to banks, including the Advisor, other
institutions and broker/dealers, and for expenses BISYS and any of its
affiliates or subsidiaries incur for providing distribution or shareholder
service assistance. For the year ended July 31, 1997, BISYS, as the Trust's
principal underwriter, received approximately $231,831 from commissions on
sales of Retail Class shares of which $210,914 was reallowed to dealers
affiliated with the Advisor and $15,602 was reallowed to other dealers.

BISYS Services serves the Trust as fund accountant. Under the terms of the
fund accounting agreement, BISYS Services is entitled to receive fees based
on a percentage of the average net assets of each Fund and is reimbursed for
certain out-of-pocket expenses incurred in providing fund accounting
services.

Fees may be voluntarily reduced or expenses reimbursed to assist the Funds
in maintaining competitive expense ratios.

Information regarding these transactions for the year ended July 31, 1997 is
as follows:

<TABLE>
<CAPTION>
INVESTMENT ADVISORY FEES
----------------------------
ANNUAL FEE AS A ADMINISTRATION 12b-1 FEES
PERCENTAGE FEES FEES VOLUNTARILY
OF AVERAGE VOLUNTARILY VOLUNTARILY REDUCED-- ACCOUNTING
DAILY NET ASSETS REDUCED REDUCED RETAIL CLASS FEES*
---------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Growth Stock Fund...... 0.80% $ -- $ 75,584 $32,878 $56,233
U.S. Treasury
Securities Fund........ 0.60% -- 9,759 5,272 7,274
Short Intermediate U.S.
Treasury
Securities Fund....... 0.50% 47,940 12,012 3,727 7,165
Growth and Income Fund. 0.80% -- 38,905 10,559 28,824
Diversified Fixed
Income Fund............ 0.60% -- 58,083 5,621 43,393
Tax-Free Securities
Fund................... 0.60% -- 117,822 6,370 87,816
Tax-Free Short
Intermediate
Securities Fund....... 0.50% -- 19,630 4,005 11,729
New Asia Growth Fund... 0.90% 7,778 8,389 13,636 4,977
</TABLE>
--------
* Accounting fees do not include out-of-pocket expenses.

Continued

88
<PAGE> 89

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

5. CAPITAL SHARE TRANSACTIONS:

Transactions in capital shares for the Trust were as follows:

<TABLE>
<CAPTION>
U.S. TREASURY
GROWTH STOCK FUND SECURITIES FUND
------------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------------- ---------- ------------ ----------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 3,204,633 224,887 $ 262,172 28,434
Dividends reinvested.... 16,102 1,191 48,799 5,310
Shares redeemed......... (1,497,916) (109,496) (228,130) (24,896)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 1,722,819 116,582 $ 82,841 8,848
============= ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 36,521,743 2,562,096 $ 1,380,971 149,658
Dividends reinvested.... 76,010 5,584 1,366,474 148,459
Shares redeemed......... (80,981,052) (5,700,654) (2,779,194) (300,730)
------------- ---------- ------------ ----------
Net increase/(decrease). $ (44,383,299) (3,132,974) $ (31,749) (2,613)
============= ========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 2,212,900 181,079 $ 120,008 12,543
Dividends reinvested.... 269,722 22,667 60,138 6,342
Shares redeemed......... (1,174,009) (94,879) (205,941) (21,534)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 1,308,613 108,867 $ (25,795) (2,649)
============= ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 131,615,185 10,917,906 $ 1,527,773 161,323
Dividends reinvested.... 6,169,023 518,783 1,842,036 194,471
Shares redeemed......... (104,518,765) (8,612,823) (30,773,600) (3,250,486)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 33,265,443 2,823,866 $(27,403,791) (2,894,692)
============= ========== ============ ==========
</TABLE>

Continued

89
<PAGE> 90

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

5. CAPITAL SHARE TRANSACTIONS (CONTINUED):

<TABLE>
<CAPTION>
SHORT INTERMEDIATE U.S.
TREASURY SECURITIES FUND GROWTH AND INCOME FUND
-------------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 140,921 14,898 $ 2,191,642 153,432
Dividends reinvested.... 36,426 3,858 81,348 6,075
Shares redeemed......... (728,488) (76,854) (527,062) (37,700)
------------ ----------- ------------ ----------
Net increase/(decrease). $ (551,141) (58,098) $ 1,745,928 121,807
============ =========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $11,979,335 1,272,770 $ 43,781,341 3,080,616
Dividends reinvested.... 55,995 5,915 2,325,676 172,366
Shares redeemed......... (9,297,503) (983,459) (30,463,375) (2,125,196)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 2,737,827 295,226 $ 15,643,642 1,127,786
============ =========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 747,638 76,883 $ 924,629 74,394
Dividends reinvested.... 47,554 4,976 16,890 1,409
Shares redeemed......... (95,449) (9,947) (128,162) (10,325)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 699,743 71,912 $ 813,357 65,478
============ =========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $17,373,908 1,805,630 $ 50,906,651 4,232,718
Dividends reinvested.... 110,962 11,544 1,235,834 104,577
Shares redeemed......... (9,634,113) (1,006,064) (23,658,493) (1,948,216)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 7,850,757 811,110 $ 28,483,992 2,389,079
============ =========== ============ ==========
</TABLE>

Continued

90
<PAGE> 91

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

5. CAPITAL SHARE TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
DIVERSIFIED FIXED TAX-FREE
INCOME FUND SECURITIES FUND
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ---------- ------------ ----------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 748,361 71,630 $ 2,100,119 201,633
Dividends reinvested.... 70,514 6,720 20,004 1,896
Shares redeemed......... (829,853) (79,822) (241,385) (23,123)
------------ ---------- ------------ ----------
Net increase/(decrease). $ (10,978) (1,472) $ 1,878,738 180,406
============ ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 44,769,922 4,245,046 $ 31,135,063 2,950,938
Dividends reinvested.... 599,007 55,986 1,613,763 151,978
Shares redeemed......... (78,102,272) (7,368,883) (35,722,280) (3,389,736)
------------ ---------- ------------ ----------
Net increase/(decrease). $(32,733,343) (3,067,851) $ (2,973,454) (286,820)
============ ========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 1,199,728 107,934 $ 619,694 58,332
Dividends reinvested.... 35,296 3,293 17,516 1,652
Shares redeemed......... (100,216) (9,260) (608,257) (58,984)
------------ ---------- ------------ ----------
Net increase/(decrease). $ 1,134,808 101,967 $ 28,953 1,000
============ ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $198,618,575 18,085,880 $ 28,592,966 2,708,891
Dividends reinvested.... 855,870 76,725 3,552,534 331,714
Shares redeemed......... (86,606,689) (7,857,921) (22,221,434) (2,101,754)
------------ ---------- ------------ ----------
Net increase/(decrease). $112,867,756 10,304,684 $ 9,924,066 938,851
============ ========== ============ ==========
</TABLE>

Continued

91
<PAGE> 92

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

5. CAPITAL SHARE TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
TAX-FREE
SHORT INTERMEDIATE NEW ASIA
SECURITIES FUND GROWTH FUND
--------------------- ---------------------
AMOUNT SHARES AMOUNT SHARES
----------- -------- ----------- --------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued................... $ 741,966 73,793 $ 1,372,902 111,117
Dividends reinvested............ 15,130 1,502 21,601 1,764
Shares redeemed................. (491,902) (48,887) (527,801) (42,850)
----------- -------- ----------- --------
Net increase/(decrease)......... $ 265,194 26,408 $ 866,702 70,031
=========== ======== =========== ========
INSTITUTIONAL CLASS SHARES:
Shares issued................... $ 5,454,511 540,179 $ 9,703,868 791,509
Dividends reinvested............ 52,152 5,141 81,463 6,605
Shares redeemed................. (8,057,230) (796,267) (3,030,589) (240,435)
----------- -------- ----------- --------
Net increase/(decrease)......... $(2,550,567) (250,947) $ 6,754,742 557,679
=========== ======== =========== ========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued................... $ 194,515 19,329 $ 1,841,034 156,856
Dividends reinvested............ 2,672 265 13,647 1,284
Shares redeemed................. (52,273) (5,147) (101,353) (8,592)
----------- -------- ----------- --------
Net increase/(decrease)......... $ 144,914 14,447 $ 1,753,328 149,548
=========== ======== =========== ========
INSTITUTIONAL CLASS SHARES:
Shares issued................... $ 7,670,654 754,274 $ 8,908,328 754,031
Dividends reinvested............ 6,511 642 46,083 4,330
Shares redeemed................. (7,930,532) (783,406) (2,879,942) (252,790)
----------- -------- ----------- --------
Net increase/(decrease)......... $ (253,367) (28,490) $ 6,074,469 505,571
=========== ======== =========== ========
</TABLE>

6. FEDERAL INCOME TAXES (UNAUDITED)

For federal income tax purposes, the following Funds have capital loss
carryforwards as of July 31, 1997, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
U.S. Treasury Securities Fund.............................. $ 288,915 2002
U.S. Treasury Securities Fund.............................. 326,761 2003
U.S. Treasury Securities Fund.............................. 3,238,241 2004
U.S. Treasury Securities Fund.............................. 58,103 2005
Short Intermediate U.S. Treasury Securities Fund........... 151,388 2005
Diversified Fixed Income Fund.............................. 405,487 2005
</TABLE>

Continued

92
<PAGE> 93

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the fiscal year ended
July 31, 1998. Diversified Fixed Income Fund and U.S. Treasury Fund deferred
such losses of $2,116,461 and $134,520, respectively. Similarly, New Asia
Growth Fund deferred foreign currency losses of $76,177.

The following table presents distributions from long-term capital gains for
the following Funds for the year ended July 31, 1997:

<TABLE>
<CAPTION>
<S> <C>
Growth Stock....................................................... $ 6,971
Growth and Income Fund............................................. 3,674,369
Diversified Fixed Income Fund...................................... 1,347,352
Tax Free Securities Fund........................................... 1,589,719
Tax Free Short Intermediate Securities Fund........................ 50,230
New Asia Growth Fund............................................... 91,852
</TABLE>

Pacific Capital Funds designates the following eligible distribution for the
dividends received deduction for corporations for the Fund's taxable year
ended July 31, 1997.

<TABLE>
<CAPTION>
GROWTH AND
GROWTH STOCK INCOME
FUND FUND
------------ ----------
RETAIL CLASS:
<S> <C> <C>
Dividend income...................................... $ 82,325 $ 32,902
Dividend income per share............................ $ 0.179 $ 0.224
INSTITUTIONAL CLASS:
Dividend income...................................... $2,328,521 $1,519,228
Dividend income per share............................ $ 0.181 $ 0.230
</TABLE>

The Pacific Capital Funds designate the following exempt-interest dividends
for the Fund's taxable year ended July 31, 1997.

<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
SECURITIES SHORT INTERMEDIATE
FUND SECURITIES FUND
----------- ------------------
RETAIL CLASS:
<S> <C> <C>
Exempt-interest distributions.................. $ 61,303 $ 30,354
Exempt-interest distributions per share........ $ 0.505 $ 0.382
INSTITUTIONAL CLASS:
Exempt-interest distributions.................. $14,097,576 $1,454,175
Exempt-interest distributions per share........ $ 0.510 $ 0.384
</TABLE>

Continued

93
<PAGE> 94

PACIFIC CAPITAL FUNDS

NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997

The percentage break-down of the exempt-interest income by state for the
Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
for the taxable year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
TAX-FREE SHORT
TAX-FREE INTERMEDIATE
STATE SECURITIES FUND SECURITIES FUND
----- --------------- ---------------
<S> <C> <C>
Alaska....................................... -- % 2.4%
Arizona...................................... 0.2 5.0
California................................... 6.0 --
Colorado..................................... 0.3 --
Connecticut.................................. 0.4 --
Florida...................................... 6.4 2.5
Georgia...................................... 2.9 --
Hawaii....................................... 57.5 57.1
Idaho........................................ 0.1 --
Illinois..................................... 0.1 4.0
Kansas....................................... 1.8 --
Maine........................................ 0.7 --
Maryland..................................... -- 1.0
Massachusetts................................ 2.0 3.4
Michigan..................................... 2.3 1.7
Minnesota.................................... 0.8 5.8
Missouri..................................... -- 1.2
New Jersey................................... 1.3 1.3
New Mexico................................... 1.9 --
New York..................................... 0.6 --
North Carolina............................... 1.2 --
Ohio......................................... 1.4 --
Oregon....................................... 1.0 1.3
Pennsylvania................................. 1.1
Puerto Rico.................................. -- 0.8
Rhode Island................................. -- 3.3
South Carolina............................... 0.8 --
Tennessee.................................... 3.2
Texas........................................ 2.1 5.2
Virginia..................................... 3.9 --
Washington................................... -- 1.2
West Virginia................................ -- 0.2
Wisconsin.................................... -- 2.6
----- -----
Total..................................... 100.0% 100.0%
===== =====
</TABLE>

7. SPECIAL MEETING

A special meeting was held on May 19, 1997 to approve the change in the sub-
adviser of New Asia Growth Fund (the fund). Credit Lyonnais International
Asset Management (HK) Ltd was acquired in February 1997 by Nicholas
Applegate Capital Management (Hong Kong) LLC. Presented in person or
represented by proxy at the meeting were holders of 907,018 shares of the
fund, who represented a majority and consequently a quorum of the 1,460,284
outstanding shares. All 907,018 voted unanimously for the change in sub-
adviser.

Continued

94
<PAGE> 95

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GROWTH STOCK FUND
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
----------------------- ---------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
------- ------------- ------- ------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.89 $11.89 $11.71 $11.71 $ 9.83 $ 9.89 $10.00
------- -------- ------- -------- ------ -------- -------
Investment Activities
Net investment income.. 0.03 0.07 0.07 0.10 0.12 0.11 0.07
Net realized and
unrealized gain (loss)
from investments...... 5.55 5.55 0.89 0.89 1.87 1.83 (0.18)
------- -------- ------- -------- ------ -------- -------
Total from Investment
Activities........... 5.58 5.62 0.96 0.99 1.99 1.94 (0.11)
------- -------- ------- -------- ------ -------- -------
Distributions
Net investment income.. (0.03) (0.07) (0.07) (0.10) (0.11) (0.12) (0.06)
In excess of net
investment income..... (0.01) -- -- -- -- -- --
Net realized gains..... -- -- (0.22) (0.22) -- -- --
In excess of net
realized gains........ -- -- (0.49) (0.49) -- -- --
------- -------- ------- -------- ------ -------- -------
Total Distributions... (0.04) (0.07) (0.78) (0.81) (0.11) (0.12) (0.06)
------- -------- ------- -------- ------ -------- -------
NET ASSET VALUE, END OF
PERIOD................. $17.43 $17.44 $11.89 $11.89 $11.71 $11.71 $ 9.83
======= ======== ======= ======== ====== ======== =======
Total Return (excludes
sales charges)......... 47.02% 47.39% 8.25% 8.53% 20.43% 20.64%(d) (1.05%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $9,742 $198,407 $5,261 $172,565 $3,905 $136,837 $56,121
Ratio of expenses to
average net assets..... 1.32% 1.07% 1.34% 1.09% 1.36% 1.13%(e) 1.41%(e)
Ratio of net investment
income to average net
assets................. 0.16% 0.45% 0.60% 0.86% 1.12% 1.30%(e) 0.98%(e)
Ratio of expenses to
average net assets*.... 1.86% 1.11% 1.88% 1.13% 1.98% 1.21%(e) 2.31%(e)
Ratio of net investment
income to average net
assets*................ (0.38%) 0.41% 0.06% 0.82% 0.50% 1.23%(e) 0.07%(e)
Portfolio Turnover (g).. 32.20% 32.20% 61.30% 61.30% 32.40% 32.40% 25.89%
Average Commission Rate
paid (h)............... $0.0893 $0.0893 $0.0895 $0.0895 -- -- --
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.

See notes to financial statements.

95
<PAGE> 96

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S TREASURY SECURITIES FUND
------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
--------------------------- --------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
--------------------------- ------ ------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04 $ 8.66 $10.00
------- ------- ------ ------- ------ ------- -------
Investment Activities
Net investment income... 0.52 0.53 0.53 0.59 0.50 0.44 0.31
Net realized and
unrealized gain (loss)
from investments....... 0.25 0.26 (0.20) (0.24) 0.38 0.76 (1.00)
------- ------- ------ ------- ------ ------- -------
Total from Investment
Activities............ 0.77 0.79 0.33 0.35 0.88 1.20 (0.69)
------- ------- ------ ------- ------ ------- -------
Distributions
Net investment income... (0.46) (0.54) (0.53) (0.55) (0.50) (0.43) (0.27)
In excess of net
investment income...... (0.07) (0.01) (0.09) (0.09) -- -- --
------- ------- ------ ------- ------ ------- -------
Total Distributions.... (0.53) (0.55) (0.62) (0.64) (0.50) (0.43) (0.27)
------- ------- ------ ------- ------ ------- -------
NET ASSET VALUE, END OF
PERIOD.................. $ 9.37 $ 9.38 $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04
======= ======= ====== ======= ====== ======= =======
Total Return (excludes
sales charges).......... 8.68% 8.92% 3.43% 3.71% 10.18% 10.49%(d) (6.95%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $1,087 $23,832 $979 $23,248 $1,035 $51,264 $60,125
Ratio of expenses to
average net assets...... 1.16% 0.91% 1.20% 0.95% 1.19% 1.02%(e) 1.15%(e)
Ratio of net investment
income to
average net assets...... 5.60% 5.85% 5.55% 5.81% 5.57% 5.78%(e) 4.62%(e)
Ratio of expenses to
average net assets*..... 1.70% 0.95% 1.74% 0.99% 1.81% 1.09%(e) 2.09%(e)
Ratio of net investment
income to
average net assets*..... 5.06% 5.81% 5.01% 5.77% 4.96% 5.71%(e) 3.68%(e)
Portfolio Turnover (g)... 44.90% 44.90% 15.75% 15.75% 80.98% 80.98% 11.36%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.

See notes to financial statements.

96
<PAGE> 97

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
-------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 13,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
--------------------------- --------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
--------------------------- ------ ------------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52 $ 9.30 $10.00
------- ------- ------ ------- ------ ------- ------
Investment Activities
Net investment income... 0.49 0.52 0.48 0.53 0.52 0.44 0.24
Net realized and
unrealized gain (loss)
from investments....... 0.14 0.14 (0.11) (0.13) 0.05 0.31 (0.52)
------- ------- ------ ------- ------ ------- ------
Total from Investment
Activities............ 0.63 0.66 0.37 0.40 0.57 0.75 (0.28)
------- ------- ------ ------- ------ ------- ------
Distributions
Net investment income... (0.49) (0.52) (0.50) (0.53) (0.49) (0.44) (0.20)
In excess of net
investment income...... -- -- (0.04) (0.04) -- -- --
Net realized gains...... -- -- -- -- -- -- --
In excess of net
realized gains......... -- -- (0.02) (0.02) -- -- --
------- ------- ------ ------- ------ ------- ------
Total Distributions.... (0.49) (0.52) (0.56) (0.59) (0.49) (0.44) (0.20)
------- ------- ------ ------- ------ ------- ------
NET ASSET VALUE, END OF
PERIOD.................. $ 9.55 $ 9.56 $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52
======= ======= ====== ======= ====== ======= ======
Total Return (excludes
sales charges).......... 6.92% 7.19% 3.90% 4.18% 6.28% 6.57%(d) (2.76%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $618 $26,722 $1,156 $23,545 $489 $16,214 $3,419
Ratio of expenses to
average
net assets.............. 0.87% 0.62% 0.92% 0.67% 0.99% 0.75%(e) 1.00%(e)
Ratio of net investment
income
to average net assets... 5.22% 5.47% 5.14% 5.40% 5.51% 5.84%(e) 3.96%(e)
Ratio of expenses to
average
net assets*............. 1.62% 0.87% 1.67% 0.92% 1.78% 0.99%(e) 5.39%(e)
Ratio of net investment
income
to average net assets*.. 4.47% 5.22% 4.39% 5.15% 4.72% 5.61%(e) (0.43%)(e)
Portfolio Turnover (g)... 51.56% 51.56% 47.17% 47.17% 62.73% 62.73% 0.00%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.

See notes to financial statements.

97
<PAGE> 98

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-----------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
----------------------- ---------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
------- ------------- ------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $12.32 $12.32 $11.44 $11.43 $10.00 $10.00
------- -------- ------- ------- ------ -------
Investment Activities
Net investment income.. 0.08 0.11 0.16 0.17 0.17 0.20
Net realized and
unrealized gain from
investments........... 5.57 5.58 1.19 1.21 1.44 1.42
------- -------- ------- ------- ------ -------
Total from Investment
Activities........... 5.65 5.69 1.35 1.38 1.61 1.62
------- -------- ------- ------- ------ -------
Distributions
Net investment income.. (0.08) (0.11) (0.15) (0.17) (0.17) (0.19)
In excess of net
investment income..... (0.01) -- (0.01) (0.01) -- --
Net realized gains..... (0.63) (0.63) (0.31) (0.31) -- --
------- -------- ------- ------- ------ -------
Total Distributions... (0.72) (0.74) (0.47) (0.49) (0.17) (0.19)
------- -------- ------- ------- ------ -------
NET ASSET VALUE, END OF
PERIOD................. $17.25 $17.27 $12.32 $12.32 $11.44 $11.43
======= ======== ======= ======= ====== =======
Total Return (excludes
sales charges)......... 47.59% 47.96% 11.96% 12.29% 16.35%(b) 16.41%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $3,726 $123,821 $1,160 $74,427 $328 $41,771
Ratio of expenses to
average net assets..... 1.32% 1.07% 1.37% 1.11% 1.40%(c) 1.14%(c)
Ratio of net investment
income to average net
assets................. 0.48% 0.79% 1.03% 1.43% 2.08%(c) 2.47%(c)
Ratio of expenses to
average net assets*.... 1.86% 1.12% 1.91% 1.15% 1.99%(c) 1.22%(c)
Ratio of net investment
income to average net
assets*................ (0.06)% 0.75% 0.49% 1.39% 1.49%(c) 2.39%(c)
Portfolio Turnover (d).. 74.83% 74.83% 80.83% 80.83% 12.78% 12.78%
Average Commission Rate
Paid (e)............... $0.0874 $0.0874 $0.0921 $0.0921
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.

See notes to financial statements.

98
<PAGE> 99

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
DIVERSIFIED FIXED INCOME FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.45 $10.53 $10.75 $10.84 $10.00 $10.00
------- -------- ------ -------- ------ -------
Investment Activities
Net investment income... 0.57 0.60 0.59 0.58 0.49 0.55
Net realized and
unrealized gain from
investments............ 0.35 0.34 (0.19) (0.16) 0.74 0.78
------- -------- ------ -------- ------ -------
Total from Investment
Activities............ 0.92 0.94 0.40 0.42 1.23 1.33
------- -------- ------ -------- ------ -------
Distributions
Net investment income... (0.57) (0.60) (0.58) (0.61) (0.48) (0.49)
In excess of net
investment income...... -- -- (0.02) (0.02) -- --
In excess of net
realized gains......... (0.09) (0.09) (0.10) (0.10) -- --
------- -------- ------ -------- ------ -------
Total Distributions.... (0.66) (0.69) (0.70) (0.73) (0.48) (0.49)
------- -------- ------ -------- ------ -------
NET ASSET VALUE, END OF
PERIOD.................. $10.71 $10.78 $10.45 $10.53 $10.75 $10.84
======= ======== ====== ======== ====== =======
Total Return (excludes
sales charges).......... 9.20% 9.30% 3.69% 3.85% 12.66%(b) 13.70%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $1,103 $132,583 $1,093 $161,742 $27 $54,827
Ratio of expenses to
average net assets...... 1.15% 0.90% 1.15% 0.88% 1.18%(c) 0.93%(c)
Ratio of net investment
income
to average net assets... 5.44% 5.67% 5.31% 5.56% 6.25%(c) 6.71%(c)
Ratio of expenses to
average net assets*..... 1.69% 0.94% 1.69% 0.92% 1.77%(c) 1.01%(c)
Ratio of net investment
income
to average net assets*.. 4.90% 5.63% 4.77% 5.52% 5.66%(c) 6.63%(c)
Portfolio Turnover (d)... 80.98% 80.98% 58.86% 58.86% 60.47% 60.47%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.

See notes to financial statements.

99
<PAGE> 100

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
TAX-FREE SECURITIES FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.44 $10.46 $10.53 $10.56 $10.00 $10.00
------- -------- ------ -------- ------ --------
Investment Activities
Net investment income... 0.49 0.51 0.50 0.52 0.39 0.42
Net realized and
unrealized gain from
investments............ 0.46 0.46 0.07 0.07 0.50 0.51
------- -------- ------ -------- ------ --------
Total from Investment
Activities............ 0.95 0.97 0.57 0.59 0.89 0.93
------- -------- ------ -------- ------ --------
Distributions
Net investment income... (0.49) (0.51) (0.49) (0.52) (0.36) (0.37)
In excess of net
investment income...... -- -- (0.04) (0.04) -- --
Net realized gains...... (0.06) (0.06) (0.09) (0.09) -- --
In excess of net
realized gains......... -- -- (0.04) (0.04) -- --
------- -------- ------ -------- ------ --------
Total Distributions.... (0.55) (0.57) (0.66) (0.69) (0.36) (0.37)
------- -------- ------ -------- ------ --------
NET ASSET VALUE, END OF
PERIOD.................. $10.84 $10.86 $10.44 $10.46 $10.53 $10.56
======= ======== ====== ======== ====== ========
Total Return (excludes
sales charges).......... 9.35% 9.58% 5.54% 5.73% 9.06%(b) 9.54%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $2,545 $296,764 $569 $288,934 $563 $281,646
Ratio of expenses to
average net assets...... 1.12% 0.87% 1.14% 0.89% 1.15%(c) 0.89%(c)
Ratio of net investment
income
to average net assets... 4.60% 4.86% 4.66% 4.92% 4.93%(c) 5.16%(c)
Ratio of expenses to
average net assets*..... 1.66% 0.91% 1.68% 0.93% 1.74%(c) 0.98%(c)
Ratio of net investment
income
to average net assets*.. 4.06% 4.82% 4.12% 4.88% 4.34%(c) 5.07%(c)
Portfolio Turnover (d)... 11.07% 11.07% 24.78% 24.78% 49.17% 49.17%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.

See notes to financial statements.

100
<PAGE> 101

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.05 $10.08 $10.11 $10.14 $10.00 $10.00
------- ------- ------ ------- ------ -------
Investment Activities
Net investment income... 0.37 0.39 0.37 0.40 0.30 0.32
Net realized and
unrealized gain from
investments............ 0.13 0.14 (0.03) (0.03) 0.08 0.11
------- ------- ------ ------- ------ -------
Total from Investment
Activities............ 0.50 0.53 0.34 0.37 0.38 0.43
------- ------- ------ ------- ------ -------
Distributions
Net investment income... (0.37) (0.39) (0.37) (0.40) (0.27) (0.29)
In excess of net
investment income...... -- -- (0.03) (0.03) -- --
Net realized gains...... (0.01) (0.01) -- -- -- --
------- ------- ------ ------- ------ -------
Total Distributions.... (0.38) (0.40) (0.40) (0.43) (0.27) (0.29)
------- ------- ------ ------- ------ -------
NET ASSET VALUE, END OF
PERIOD.................. $10.17 $10.21 $10.05 $10.08 $10.11 $10.14
======= ======= ====== ======= ====== =======
Total Return (excludes
sales charges).......... 5.06% 5.36% 3.41% 3.67% 3.90%(b) 4.36%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $724 $37,410 $451 $39,472 $308 $39,993
Ratio of expenses to
average net assets...... 1.09% 0.84% 1.08% 0.83% 1.05%(c) 0.85%(c)
Ratio of net investment
income
to average net assets... 3.57% 3.82% 3.64% 3.90% 3.82%(c) 4.03%(c)
Ratio of expenses to
average net assets*..... 1.64% 0.89% 1.63% 0.88% 1.64%(c) 0.94%(c)
Ratio of net investment
income
to average net assets*.. 3.02% 3.77% 3.09% 3.85% 3.23%(c) 3.94%(c)
Portfolio Turnover (d)... 29.46% 29.46% 54.70% 54.70% 89.98% 89.98%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.

See notes to financial statements.

101
<PAGE> 102

PACIFIC CAPITAL FUNDS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
NEW ASIA GROWTH FUND
-------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED FEBRUARY 15, 1995 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
----------------------- ----------------------- -------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
------- ------------- ------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.11 $11.14 $11.21 $11.22 $10.00 $10.00
------- ------- ------- ------- ------ ------
Investment Activities
Net investment income
(loss)................ 0.03 0.06 (0.02) (0.01) 0.02 0.04
Net realized and
unrealized gain from
investments........... 2.88 2.87 0.20 0.22 1.19 1.18
------- ------- ------- ------- ------ ------
Total from Investment
Activities........... 2.91 2.93 0.18 0.21 1.21 1.22
------- ------- ------- ------- ------ ------
Distributions
Net investment income.. (0.01) (0.01) -- -- -- --
In excess of net
investment income..... -- -- 0.02 0.03 -- --
Net realized gains..... (0.12) (0.12) (0.26) (0.26) -- --
------- ------- ------- ------- ------ ------
Total Distributions... (0.13) (0.13) (0.28) (0.29) -- --
------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD................. $13.89 $13.94 $11.11 $11.14 $11.21 $11.22
======= ======= ======= ======= ====== ======
Total Return (excludes
sales charges)......... 26.31% 26.50% 1.71% 1.99% 12.10%(b) 12.20%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $3,459 $18,376 $1,990 $8,469 $330 $2,861
Ratio of expenses to
average net assets..... 1.98% 1.72% 2.22% 1.98% 2.24%(c) 1.97%(c)
Ratio of net investment
income (loss)
to average net assets.. 0.20% 0.46% (0.28%) (0.02%) 0.80%(c) 1.18%(c)
Ratio of expenses to
average net assets*.... 2.58% 1.82% 3.58% 2.84% 3.51%(c) 2.74%(c)
Ratio of net investment
income (loss)
to average net assets*. (0.40%) 0.36% (1.64%) (0.88%) (0.47%)(c) 0.42%(c)
Portfolio Turnover (d).. 134.89% 134.89% 86.53% 86.53% 55.62% 55.62%
Average Commission Rate
Paid (e)............... $0.0059 $0.0059 $0.0069 $0.0069 -- --
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.

See notes to financial statements.

102
<PAGE> 103

APPENDIX A

RATINGS OF FIXED INCOME SECURITIES

The following is a description of the ratings given by
Moody's Investor Service, Inc. ("Moody's"), Duff & Phelps, Inc. ("D&P"), Fitch
Investor Service ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA Limited
("IBCA") and Thompson Bank Watch ("Thompson"), each an NRSRO, to corporate
bonds and commercial paper.

Corporate Bond Ratings

Moody's:

Aaa - Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than in Aaa
securities.

A - Bonds rated A possess many favorable investment
attributes, and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa - Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba - Bonds rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any longer period of time may
be small.

A-1

<PAGE> 104

Caa - Bonds rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

S&P:

AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.

AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate
capability to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in higher rated
categories.

BB - Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments.

B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.

CCC - Bonds rated CCC have a currently identifiable
vulnerability to default and are dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
they are not likely to have the capacity to pay interest and repay principal.

A-2

<PAGE> 105

CC - The rating CC is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC rating.

C - The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC--debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.

CI - The rating CI is reserved for income bonds on which no
interest is being paid.

D - Debt rated D is in default. The D rating is assigned on
the day an interest or principal payment is missed. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.

L - The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or the
Federal Deposit Insurance Corp. and interest is adequately collateralized.

* - Continuance of the rating is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR - Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.

D&P:

AAA - Bonds rated AAA are judged to be of highest credit
quality and carry the smallest amount of investment risk.

A-3

<PAGE> 106

AA - Bonds rated AA are of high credit quality, but modest
risk may vary over time due to economic conditions.

A - Bonds rated A have average but adequate protection, but
risk is more variable and greater in periods of economic stress.

BBB - Bonds rated BBB offer below average protection which is
still considered sufficient for prudent investment.

The ratings from AA to BBB may be modified by the addition of
a plus or minus sign to show a security's relative standing within its
category.

Fitch:

AAA - Bonds rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.

AA - Bonds rated AA are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+."

A - Bonds rated A are considered to be investment grade and
of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.

BBB - Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact
on these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.

BB - Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.

B - Bonds rated B are considered highly speculative. While
bonds in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.

CCC - Bonds rated CCC have certain identifiable
characteristics which, if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and economic environment.

A-4

<PAGE> 107

CC - Bonds rated CC are minimally protected. Default in
payment of interest and/or principal seems probable over time.

C - Bonds rated C are in imminent default in payment of
interest or principal.

DDD-DD- and D - Bonds are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued
on the basis of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.

Thomson:

Thomson rates only bank debt.

AAA - Bonds rated AAA have a very high ability to pay interest and
principal on a timely basis.

AA - Bonds rated AA have a superior ability to pay interest
and repay principal with limited incremental risk versus AAA bonds.

A - Bonds rated A have a strong ability to repay principal
and interest, but could be more vulnerable to adverse internal and external
developments.

BBB - Bonds rated BBB have an acceptable capacity to pay
interest and repay principal and are more vulnerable to risk than higher-rated
obligations.

BB, B, CCC, and CC, designations are assigned by Thomson to
non-investment grade long-term debt. Such issues are regarded as having
speculative characteristics regarding the likelihood of timely payment of
principal and interest. BB indicates the lowest degree of speculation and CC
the highest degree of speculation. The D designation indicates that the
long-term debt is in default.

The ratings from AAA through CC may include a plus or minus
sign designation which indicates where within the respective category the issue
is placed.

IBCA:

AAA - Bonds rated AAA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.

AA - Bonds rated AA have a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.

A-5

<PAGE> 108

A - Bonds rated A have a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

BBB - Bonds rated BBB have a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.

BB, B, CCC, CC, and C Bonds are speculative. BB represents
the lowest degree of speculation and indicates a possibility of investment risk
developing. C represents the highest degree of speculation and indicates that
the obligations are currently in default.

IBCA may append a rating of plus (+) or minus (-) to a rating
to denote a relative status within major rating categories.

CORPORATE COMMERCIAL PAPER RATINGS

MOODY'S:

The term "commercial paper" as used by Moody's means
promissory obligations not having an original maturity in excess of nine
months. Moody's makes no representations as to whether such commercial paper
is by any other definition "commercial paper" or is exempt from registration
under the Securities Act of 1933, as amended.

Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody's employs the
following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:

P-1 (Prime-1) - Issuers rated P-1 have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics:

- Leading market positions in well established
industries
- High rates of return on funds employed
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation
- Well established access to a range of financial
markets and assured sources of alternate
liquidity.

A-6

<PAGE> 109

P-2 (Prime-2) - Issuers rated P-2 have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be subject to more variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

P-3 (Prime-3) - Issuers rated P-3 have an acceptable capacity
for repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime
rating categories.

If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring
the reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion
on the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular
support arrangements.

S&P:

A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
four categories are as follows:

A - Issues rated A are regarded as having the greatest
capacity for timely payment. Bonds in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1 - Issues rated A-1 indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Commercial
paper with overwhelming safety characteristics will be rated A-1+.

A-2 - Issues rated A-2 have a strong capacity for timely
payments on issues. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3 - Issues rated A-3 have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

A-7

<PAGE> 110

B - Issues rated B are regarded as having only adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.

C - Issues rated C are short-term debt obligations with a
doubtful capacity for payment.

D - This rating indicates that the issue is either in default
or is expected to be in default upon maturity.

D&P:

Duff 1+ - The Duff 1+ rating for corporate commercial paper
indicates the highest certainty of timely payment. Corporate commercial paper
with very high certainty of payment, excellent liquidity and minor risk will be
rated Duff 1. Corporate commercial paper with high certainty of timely payment,
strong liquidity and very small risk will be rated Duff 1- .

Duff 2 - The Duff 2 rating for corporate commercial paper
indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital market is good. Risk factors are
small.

FITCH:

F-1 - The highest rating for corporate paper is F-1+. Issuers
so rated have exceptionally strong credit quality. Issuers rated F-1 have very
strong credit quality, reflecting assurance of timely payment only slightly
less in degree than F-1+ issues.

F-2 - Issuers rated F-2 have good credit quality and
satisfactory degree of assurance of timely payment, reflecting the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.

THOMSON:

TBW-1 - The TBW-1 rating reflects a very high degree of
likelihood that principal and interest will be timely repaid and paid.

TBW-2 - Bank commercial paper rated TBW-2 has a strong degree
of safety regarding payment.

TBW-3 - Bank commercial paper rated TBW-3 is the lowest
investment grade category, reflecting an adequate capacity to timely service
principal and interest but more exposure to adverse internal and external
developments than higher-rated issues.

TBW-4 - Bank commercial paper rated TBW-4 indicates that the
debt is regarded as non-investment grade and therefore speculative.

A-8

<PAGE> 111

CORPORATE NOTE RATINGS

S&P:
The two highest ratings for corporate notes are SP-1 and
SP-2.

SP-1 - Notes rated SP-1 reflect a very strong or strong
capacity to pay principal and interest. Note issues with overwhelming safety
characteristics will be rated SP-1+.

SP-2 - Notes rated SP-2 reflect a satisfactory capacity to
pay principal and interest.

A-9

<PAGE> 112

APPENDIX B

OPTIONS AND FUTURES

The following instruments may be used by a Fund for hedging purposes or to
enhance income to the extent described in the applicable Prospectus and this
Statement of Additional Information.

Options on Equity and Debt Securities -- A call option is a short-term contract
pursuant to which the purchaser of the option, in return for a premium, has the
right to buy the security or currency underlying the option at a specified
price at any time during the term of the option. The writer of the call option,
who receives the premium, has the obligation, upon exercise of the option
during the option term, to deliver the underlying security or currency against
payment of the exercise price. A put option is a similar contact that gives its
purchaser, in return for a premium, the right to sell the underlying security
or currency at a specified price during the option term. The writer of the put
option, who receives the premium, has the obligation, upon exercise of the
option during the option term, to buy the underlying security or currency at
the exercise price.

Options on Securities Indexes -- A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional stock option, except that exercise of a securities index
option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser
will realize, and the writer will pay, an amount based on the difference
between the exercise price and the closing price of the securities index.

Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.

Interest Rate Futures Contracts -- Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases, the contracts are closed out before the settlement date without the
making or taking of delivery.

Options on Future Contracts -- Put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.

Forward Contracts on Foreign Currencies -- A forward contract on a foreign
currency is an obligation to purchase or sell a specific currency at a future
date, which may be any number of days agreed upon by the parties from the date
of the contract at a price set on the date of the contract.

B-1